September 15, 2022
  • September 15, 2022

The Canadian economy ends the year on a high note

By on March 1, 2022 0

The Canadian economy grew by 6.7% q/q annualized in the last quarter of 2021, leaving real GDP for 2021 at a solid 4.6%.

A major driver of growth was the accumulation of business inventories (loosening supply chains), which rose $11 billion (adding 4.2 percentage points to annualized growth).

International trade also grew at a decent pace, with exports up 13.4% (annualized) and imports up 14.4%. This increase is attributable to the increase in motor vehicle production.

Household consumption reached a disappointing 1% (annualized) as Canadians reduced their spending on goods in favor of services.

Business investment rose 7.9%, with residential construction up 10.2% and machinery and equipment up 4.7%.

Key implications

The Canadian economy ended 2021 on a high note, with real GDP just above pre-pandemic levels.

The strong growth at the end of the year provided a solid transition into the new year, but the start of 2022 has been less than ideal. With the Omicron wave and subsequent lockdowns, we are tracking the first quarter of 2022 at just above zero growth. That said, the economy is rebounding thanks to the easing of restrictions. This should allow Canada to outperform for the remainder of 2022.

For the Bank of Canada, this report justifies its view that the economy has fully recovered from the downturn caused by the pandemic. The Bank will have this report in its back pocket as it prepares to raise the overnight rate tomorrow despite lingering geopolitical risks.