Canada’s economy was firing on all cylinders as 2025 approached, but the shadow of U.S. President Donald Trump’s return—and his looming tariff threats—could douse the newfound momentum.
Statistics Canada dropped a bombshell Friday, revealing that real gross domestic product (GDP) surged 2.6% annualized in the fourth quarter of 2024—blowing past the 1.8% growth that both economists surveyed by Reuters and the Bank of Canada had penciled in. The burst was fueled by a consumer spending spree, with households snapping up new trucks, vans, and SUVs at the fastest clip in over two years.
James Orlando, TD Bank’s director of economics, chalked it up to the Bank of Canada’s 2024 interest rate cuts. “Cheaper loans put confidence back in consumers’ pockets,” he said in an interview. “Malls, dealerships, restaurants—they’re buzzing. Canadians are out there spending, and that’s what’s driving this GDP pop.”
December capped the quarter with a flourish, posting 0.2% GDP growth, while StatCan’s early peek at January hints at a slight uptick to 0.3%. Retail trade soared 2.6% in December—the steepest climb since June 2021, when pandemic shopping curbs faded. Even a Canada Post strike couldn’t derail the transportation sector, which rode a courier boom and a rebound from resolved rail and port disputes to finish strong.
The good news didn’t stop there. Third-quarter growth for 2024 was revised upward to a robust 2.2% annualized, more than doubling the initial 1% estimate. But all this vigor hit the tape just as Trump stormed back into the White House, rattling markets with tariff talk aimed at Canada.
“Lower rates and a sales tax holiday lit a spark late last year,” said CIBC Capital Markets chief economist Avery Shenfeld in a client note. “But a tariff wall in 2025 could smother it fast.” He warned that businesses might slam the brakes on capital spending amid the uncertainty, and a full-blown trade war could “snuff out growth entirely.” Shenfeld added that the tariff risk might temper enthusiasm for the rosy GDP report and keep the Bank of Canada eyeing a March rate cut if Trump’s threats turn real.
Orlando agreed the numbers would normally signal a pause on rate cuts, with inflation ticking up and growth accelerating. “In a vacuum, you’d hold steady,” he said. “But with tariffs staring us down, a quarter-point trim to 2.75% on March 12 feels like smart insurance.” Markets, per LSEG Data & Analytics, see it as a coin toss between a seventh straight cut and a pause.
Other highlights from StatCan: residential construction hit its briskest pace in over three years, though businesses trimming inventories softened the gains. GDP per capita eked out a 0.2% rise—snapping a streak where it shrank in five of the prior seven quarters, with second-quarter 2024 revised into the black.
For Orlando, the late-2024 strength offers a buffer against what’s coming. “It’s huge to know how tough you are before the punches land,” he said. “Trump’s shadow looms large, but Canada’s got some muscle to flex—if it can dodge the tariff hit.”