The Bank of Canada remains concerned about tepid business investment, a key official said on Tuesday, adding it is too early to assume the worst of underperformance is over despite stronger-than-expected economic growth recently.

Deputy Governor Lawrence Schembri said sluggish business investment and a shift towards protectionist trade policies in the United States are the two biggest downside risks to the bank's inflation outlook, reiterating that material slack remains in Canada.

While fourth-quarter GDP data came in "somewhat stronger" than the bank anticipated in January, Schembri highlighted the divergence in both growth and monetary policy between Canada and the United States, where "U.S. authorities have now begun to tighten" interest rates.

"While the headline (GDP) number is welcome news, a more detailed analysis suggests continued scope for caution. Exports continue to face ongoing competitiveness challenges," Schembri said in prepared remarks to the Greater Vancouver Board of Trade.

"Although the Canadian economy has made good progress adjusting to the oil price shock, material slack in our economy remains, in contrast to the U.S. economy, which is approaching its productive capacity," he added.

Governor Stephen Poloz said in January that a rate cut was not yet off the table. But stronger-than-expected growth in jobs, exports, and retail sales since then have boosted market confidence for an eventual rate hike, expected in 2018, rather than a rate cut.

Schembri said that growth in the United States is expected to remain solid, supported by robust fundamentals, including a strong labor market with gradually rising wages.

But he noted particular concern about business investment, which represents about 12 per cent of Canadian GDP, saying the bank tracks it very closely as an economic bellwether that signals confidence in demand and drives the business cycle.

While Schembri pointed to cyclical and structural factors behind sluggish investment, he said geopolitical uncertainty was dragging on growth.

"Heightened concerns about prospective protectionist measures mean that we should not presume that the economic disappointments we have experienced since the Great Recession are over," he said.

On the upside, Schembri said Canadian fiscal stimulus and strengthening U.S. and global economies should help support exports and domestic demand. He said stronger U.S. growth and higher commodity prices were the key upside risks to the inflation outlook, saying they could improve Canada's terms of trade and business investment.