Canada Economic Outlook
The economy flatlined in Q4 according to recent data, undershooting analysts’ expectations. However, the reading was dampened by a softer inventory accumulation, and underlying momentum was stronger than the headline GDP figure suggested; private spending, government spending and exports expanded, while fixed investment contracted at a softer pace compared to the prior quarter. Turning to Q1, early signs suggest robust activity in the face of tighter monetary policy. Flash data pointed to a 0.3% month-on-month GDP expansion in January. Moreover, in January–February inflation retreated and the unemployment rate remained at rock-bottom levels, which should be aiding private consumption. However, the rate-sensitive real estate sector remains downbeat, with housing starts and prices falling in January–February from Q4.
Canada Inflation
Inflation fell to 5.2% in February from 5.9% in January, marking the lowest inflation rate since January 2022 and coming in below market expectations. Price pressures for food, housing and transportation eased. Inflation should move back within the Central Bank’s 1.0–3.0% target range in H2, supported by improved global supply chains and the impact of past rate hikes.