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Canadaian Economy Grows Impressively Exceeding Expectations

Robust growth strengthens the argument for the Bank of Canada to maintain interest rates at current levels until June. The Canadian economy managed to avoid a recession as gross domestic product increased slightly in the fourth quarter of last year, driven by increased exports of crude oil and decreased imports. This development suggests that the Bank of Canada is likely to adhere to its strategy of keeping interest rates steady when it issues its next announcement on March 6.

According to Statistics Canada, real GDP increased by an annualized rate of one percent for the three months ending December 31, surpassing the consensus forecast of 0.8 percent. This growth follows a 0.5 percent decline in the third quarter. Initially, the agency reported a 1.2 percent annualized decline in GDP for the third quarter.

Despite the consecutive annual growth in GDP since 2020, when the COVID-19 pandemic caused a contraction, the recent growth rate is the slowest since 2016, excluding 2020. Advance data suggests that real GDP expanded by 0.4 percent in January, as reported by Statistics Canada.

However, not all aspects of the economic picture were positive. Final domestic demand, which includes expenditures on final consumption and gross fixed-capital formation, declined by 0.2 percent in the fourth quarter, following a 0.2 percent increase in the previous quarter.

Andrew Grantham, an economist at CIBC Capital Markets, suggested that the growth was primarily driven by a relaxation of earlier supply constraints, benefiting exports and car sales, rather than an improvement in domestic demand. He maintains his prediction that the Bank of Canada will implement its first interest rate cut in June.

James Orlando, senior economist at TD Economics, noted that the economy exhibited some signs of vitality in the final quarter, with consumers, who had restrained spending for much of the year, opting to engage in activities such as driving around in new cars and frequenting shopping malls during the holiday season.

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