Canada economic growth rises to 2.6 percent in fourth quarter

Canada's economy grew 2.6 percent in the fourth quarter, beating expectations, but widespread uncertainty looms over the country with President Donald Trump vowing to impose crippling import tariffs next week.

Statistics Canada said rises in household spending, business investment and exports drove the gains, which topped the one percent growth posted in the third quarter of 2024.

Canada was the first G7 economy to begin cutting interest rates last year after raising borrowing costs to tame inflation.

"Canada's economy showed some evident sparks of life in the final quarter of 2024 as it responded to lower interest rates," CIBC economics said in a note on the latest GDP numbers.

"But that flame could still be extinguished in 2025 if the country faces a tariff wall," CIBC added.

Trump had announced -- then halted -- 25 percent levies on Canadian and Mexican imports this month over illegal immigration and deadly fentanyl, with Canadian energy to face a lower rate.

But the month-long pause ends March 4 and Trump wrote on social media Thursday that the proposed levies will happen as scheduled until the problem of fentanyl stops "or is seriously limited."

Prime Minister Justin Trudeau said Thursday that Canada was "working day and night" to avert Trump's tariffs.

But he asserted that Canada will retaliate if the measures come into force on Tuesday, raising renewed risk of a trade war.

Royce Mendes of Desjardins noted that although Canada's economic performance "surpassed all expectations"  -- with most experts predicting 1.7 percent fourth quarter growth -- market reaction to the "surprising" data should remain muted.

"The situation is extremely tenuous, with the possible imposition of US tariffs on Canadian goods as early as next week," Mendes said.

Mendes also noted that the boost in household spending was linked to a Christmas season tax holiday on certain products -- a measure implemented by Trudeau to give Canadians more spending flexibility around the holidays.

That policy was fiercely criticized by Trudeau's then finance minister Chrystia Freeland, who accused him of pushing through a vote-winning gimmick instead of shoring up Canada's finances ahead of a possible trade war.

Freeland's stunning resignation in December, which she tied partly to the tax holiday, was seen as a key factor in forcing Trudeau to step down.

Trudeau has said he will quit as prime minister after his Liberal Party chooses a new leader in a vote set for March 9.