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Economy Sees Better End to the Year

Canadian Economics

By: Viktor Cicman

    

  • Real gross domestic product (GDP) increased 0.2 per cent in December, rebounding after a decline in November. For the fourth quarter, real GDP rose by 0.6 per cent (2.x per cent annualized).
  • The Canadian economy expanded by 1.5 per cent in 2024 as a whole.
  • Higher household spending led growth in the fourth quarter. Rising by 1.4 per cent, that marked the strongest growth since the second quarter of 2022. Higher spending on new trucks, vans and sport utility vehicles led the overall increase. On a per capita basis, household expenditures rose 1.0 per cent in the fourth quarter, reversing the trend seen since early 2023.
  • Compensation of employees rose 1.0 in the final quarter, slower than the 1.7 per cent observed in the third quarter. This led to a lower household savings rate, which fell to 6.3 per cent from 7.1 per cent in the third quarter, as spending outpaced income.
  • Residential construction saw a large increase in the fourth quarter, rising by 3.9 per cent, the largest quarterly increase since the first quarter of 2021. While residential investment finished the year strong, it was still lower than the previous year, falling by 1.1 per cent.
  • Business investments finally saw growth in the fourth quarter, led by non-residential construction. Investment in machinery and equipment also increased 4.2 per cent, fuelled by higher spending on industrial machinery and equipment and aircraft and other transportation equipment and part. For the year, business spending was down, as all components fell from the previous year.
  • Both exports and imports rebounded in the fourth quarter, after falling in the third quarter. Exports rose by 1.8 per cent, after falling 0.2 per cent in the third quarter, while imports increased by 1.3 per cent, following a decline of 0.3 per cent.
  • Despite the positive results across many sectors, investment in inventories moderated growth considerably. as the manufacturing, wholesale and retail sectors recorded notable inventory drawdowns. For the year, non-farm inventories accumulated at a slower pace in 2024 ($16.4 billion) compared with 2023 ($28.2 billion).
  • In December, both services-producing and good-producing industries were up, contributing to the fifth increase in the last six months. However, goods-producing sectors contracted due to slower activity in the mining, oil and gas, and manufacturing sectors.

Insights

The Canadian economy finished the year on a positive note. The Bank of Canda has cut interest rates by 200 basis points since June, which helped to spur an increase in spending and housing activity in the fourth quarter. The labour market has also showed signs of turning around in recent months, with stronger job gains than anticipated since November. Meanwhile, household spending per capita finally showed signs of turning around in the fourth quarter, rising by 1.0 per cent.

Although today’s release was broadly upbeat, 2024 was a difficult year for the Canadian economy as a whole. Business investment struggled to gain any momentum, and household spending per capita fell by 0.6 per cent. Persistent inflation across food and shelter continued to weigh on households, and the impact of falling interest rates is gradual, which has weighed on consumer and business confidence.

In 2025, economic uncertainty looms. New federal limits on international immigration will drastically slow population growth, labour market expansion, and consumer spending—all of which supported the economy in 2024. The biggest risk, of course, is potential tariffs from the new U.S. administration. Canada’s one-month reprieve from proposed 25 per cent tariffs ends on March 4, with new steel and aluminum tariffs set to take effect on March 12—with further restrictions possible. These measures would severely impact several Canadian industries —particularly manufacturing—and weaken the Canadian dollar, potentially reigniting inflation. Business investment, already a sore spot in Canada, would decline further. This is especially the case in the automotive sector, as recent investment in electric vehicles and battery production would be jeopardized. As the economy faces serious threats this year, renewed efforts from all levels of government may be needed to prevent a significant downturn.

To learn more about Canada’s economic outlooks for the long-term or the next five year’s, please visit The Conference Board of Canada’s Canadian Outlook.

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