Posted on March 4, 2015 by the XM Investment Research Desk at 11:05 am GMT
GDP data showed that the Canadian economy grew at a faster pace than was forecast in Q4, which increased market expectations for the Bank to hold rates steady today and not lower the current 0.75% rate.
The annualized GDP rate came in at 2.4%in the final three months of 2014, surpassing economists’ forecasts for 2%. However this was a slower pace of growth than the revised 3.2% (from 2.8%) recorded in the third quarter. For the year overall, GDP rose 2.5%, which was up from 2.0% in 2013 and 1.9% in 2012.
Contributing to growth was household spending which grew 2.4% on an annualized basis. This beat economists’ expectations for a 2% advance between October and December, but just missed the Bank of Canada’s target of 2.5%.Also helping the GDP figure tick up was manufacturing.
While the GDP number showed a respectable performance for overall growth in the economy last year, a breakdown of the GDP report showed that there were some red flags for growth ahead. The Canadian dollar initially strengthened right after the release of the data but the market’s enthusiasm soon faded as they digested the report and saw weakness beneath the surface. Exports of goods fell 2.5% on an annualized basis. Meanwhile, business investment fell 0.4%, with companies spending less on plant and equipment.
The main drag on the Canadian economy will be the drop in oil prices, one of Canada’s main exports. The Bank of Canada will have to take this into account when making monetary policy decisions. In an effort to manage the risk to protect the economy from falling oil prices, the Bank would likely cut rates in the near future, if not today. The Bank lowered its benchmark rate in January to 0.75% from 1%.
The greenback traded around 1.2520 versus the loonie by midday European session trading on Wednesday, which was close to pre-GDP levels from Tuesday.