Economists say Canada’s GDP showed surprising momentum at the end of last year after Statistics Canada figures showed better-than-expected growth in November and a early signs of an uptick in December.

“(November showed) the first recorded increase in GDP since May, so it shows some vigor in the Canadian economy,” David Watt, chief economist at HSBC Canada, told BNN Bloomberg in a Wednesday television interview.

The Canadian economy grew 0.2 per cent in November, Statistics Canada reported Wednesday morning, double the expectations of a Bloomberg survey of economists. 

“There was a lot of good news to report in the November real GDP release,” said Randall Bartlett, senior director of Canadian economics at Desjardins, in a Wednesday note. 

“The relatively broad-based gains were led by an outstanding performance in goods-producing sectors, with agriculture, utilities and manufacturing all shedding their recent weakness.”

Meanwhile, a preliminary estimate from the agency suggests real gross domestic product increased 0.3 per cent in the fourth quarter after declining 1.1 per cent in the third, bringing total economic growth in 2023 to 1.5 per cent.

StatCan’s December preliminary estimate won’t be confirmed until late February, but assuming it holds, it would be the strongest pace of monthly GDP growth since May of last year, Bartlett said, and real GDP by industry will have advanced by 1.2 per cent annualized in the final quarter of 2023.

Meanwhile, growth in real GDP by expenditures finished closer to 1.0 per cent in the fourth quarter, he said, well above the Bank of Canada’s recent 0.0 per cent forecast in its latest Monetary Policy Report.

'Slow and low' growth

Watt said the latest numbers suggest it “doesn’t seem like” Canada is in a recession, but the economy remains weak and growth continues to be slow.

“If you look at most of these statistics on a three month annualised basis, you still see that goods GDP is about flat, services GDP is about flat, and any other breakdowns that you get still suggests that the Canadian economy is not showing much dynamism,” he said.

“Growth is still slow and low, but it's just maybe not as weak as we had been anticipating.”

Tu Nguyen, economist with accounting and consultancy firm RSM Canada, said Wednesday that the reported economic growth, particularly in manufacturing, is “encouraging.”

“The economy looks to be crawling along instead of contracting,” Nguyen said in a written statement. “The GDP report provides some uplifting news for Canada.”

Despite the optimism around the headline numbers, an FX market analyst at Monex Europe and Canada said in a note that the figures pose “more questions than answers.”

“Whilst today’s numbers suggest the economy returned to growth following a contraction in the (third quarter), any expansion was likely modest, and forward-looking indicators suggest that this strength should fade over coming months,” Nick Rees said.

Figures could challenge Bank of Canada

Watt said the GDP figures could make the Bank of Canada’s decision making process “more challenging” as the central bank waits for signs that the economy is cooling enough to bring inflation down to its two per cent target.

“At the end of the day, the bank's going to see there's still some resilience to the Canadian economy, we still see inflation pressures that are easing … but it's not in any rush,” he said.

“The Bank of Canada is going to take it nice and slow and make sure that they’re making the decision to cut interest rates at the right time.”

Bartlett shared that sentiment, saying the GDP data gives the Bank of Canada “the opportunity to keep rates unchanged for now,” adding that sustained economic strength could lead to higher-than-hoped-for inflation in 2024.

“However, we anticipate more economic weakness on the horizon, as ongoing mortgage renewals at higher rates and slowing population growth weigh on the Canadian economy,” he said.

Watt said he believes the Bank of Canada’s first rate cut of the year will come in June, and he thinks the bank is more likely to delay a cut until July rather than cut at their March or April decisions.

With files from the Canadian Press and Bloomberg News