Canadian Gross Domestic Product, Fourth Quarter and Dec. 2009

Date: March 1, 2010

Source: Statistics Canada

Summary: Real Gross Domestic Product (GDP), Canada’s broad measure of economic growth, increased by 5.0 per cent on an annualized basis in the fourth quarter. This was the largest quarterly increase since the third quarter of 2000. The goods producing sector posted its first quarterly gain since the second quarter of 2007. Service sector growth also continued. On a monthly basis, the rate of GDP growth increased as well, posting the strongest monthly gain since December 2006.

Analysis: The growth rate for fourth quarter GDP was higher than forecast by the Bank of Canada and many regularly published forecasters. The consumer-driven side of the economy remained important, with the real estate sector leading the way. The spin-off benefits of new and existing home sales in the broader economy (renovation spending, home furnishings etc.) were substantial in the last three months of 2009. Goods production related to improving exports also played a large role in fourth quarter growth. It is encouraging to see growth in the majority of sectors in the Canadian economy. As government spending shrinks after 2010, trade-related growth will be required to augment domestic spending driven by households. The strong rate of growth at the end of 2009 also supports the widely-held view that the Bank of Canada will start to increase the target for the Overnight Lending Rate in the second half of this year, as the Bank looks to keep consumer price inflation close to its two per cent target over the longer term.