Canada’s economy likely grew in December, avoiding recession

OTTAWA: Canada's economy likely grew in December after expanding more than expected in November, data showed on Wednesday, indicating a final quarter rebound as the central bank considers when to start reducing 22-year-high interest rates.

Gross domestic product likely expanded by 0.3 percent in December, which would mean annualized growth of 1.2 percent in the fourth quarter, according to a preliminary estimate by Statistics Canada. In the third quarter, Canada's GDP contracted by 1.1 percent.

That means the economy probably avoided a technical recession - defined as two consecutive quarters of contraction - in the second half of last year.

The economy expanded by 0.2 percent in November from the previous month, Statscan said, faster than a 0.1 percent forecast by analysts polled by Reuters. Growth resumed in November after shrinking or stalling the previous five months.

"The Canadian economy apparently rose from the dead late last year," said Royce Mendes, head of macro strategy for Desjardins Group.

If the December estimate is confirmed, the economy grew faster than the Bank of Canada's (BoC) forecast last week for zero growth in the fourth quarter. BoC Governor Tiff Macklem has said he does not expect the economy to dip into recession.

The central bank has kept its overnight rate unchanged at 5% for the last five months, but is beginning to shift its focus to when borrowing costs could be lowered rather than whether to hike again.

"The resilience (in growth) suggests that the Bank of Canada might be able to hold rates steady until closer to the middle of the year," Mendes said.

Money markets pared bets for an April rate cut to a 42 percent chance from a 51 percentchance before the growth figures.

The Canadian dollar traded nearly unchanged at 1.34 per U.S. dollar, or 74.63 U.S. cents, after clawing back an earlier decline.

November growth was led by goods-producing industries such as agriculture, mining, and construction. These industries saw the highest growth rate since January 2023, Statscan said.

Canada's goods-producing sector expanded 0.6 percent on a monthly basis in November, while the service-producing sector grew by 0.1 percent, the data showed.

The economy in the U.S., which is Canada's top trading partner, has defied predictions of a downturn and grew faster than expected in the fourth quarter, the Commerce Department said last week in an advance estimate.

"Most of the growth in November (and apparently in December too) came from the goods-producing sectors, and particularly manufacturing and resources," said Doug Porter, chief economist at BMO Capital Markets.

"Since these sectors are heavily influenced by exports, it seems that the surprising resiliency in the U.S. economy is indeed spilling over into some sectors in Canada," Porter said.

The rate hikes have helped to bring down inflation from a four-decade high of 8.1 percent in June 2022 to 3.4 percent in December, but a return to the bank's 2 percent target is not expected until 2025. The BoC's next rate announcement is in March.

"This solid result, after a long dry spell for growth, affords policymakers the ability to gently push back on easing chatter, as they wait for underlying inflation to come down further," Porter said.