GDP increased 0.6 percent in the third quarter after rising by 0.5 percent in the third quarter and +0.7 percent in Q2. Economic activity expanded by 2.5 percent compared to the fourth quarter of 2023.

Higher household spending, as well as increased exports and business investment drove the increase in economic activity. This was partially offset by declines in business inventories and higher imports (possibly to get ahead of U.S. tariffs).

Household spending jumped 1.4 percent, the strongest growth rate since Q2 2022. The biggest contributor was increased spending on new trucks, vans and sport utility vehicles, followed by greater consumption of financial services.

It is worth noting, according to StatsCan analysis, that new trucks, vans and sport utility vehicles is the household category that is the most dependent on U.S. imports, with 46.7 percent share of total imports.

Per capita household expenditures ticked up by 1 percent in the fourth quarter, but is down 0.6 percent for all of 2024.

Business investment in non-residential structures rose 0.7 percent in the fourth quarter, led by building construction (+1.6 percent). Investment in machinery and equipment increased 4.2 percent in the fourth quarter, powered by increased spending on industrial machinery and equipment and aircraft and other transportation equipment and parts, which coincided with increased imports of aircraft and ships.

In 2024, business investment in non-residential structures fell by 1.8 percent, led by a decline in building construction (-3.4 percent).

The data is in line with the Bank of Cananda's expectation for a gradual increase in the pace of growth as interest rate cuts boost consumption. However, the significant downside risk from tariffs which could go into effect soon as March means the central bank might be forced to take actions that are even more aggressive in the near term to prop up the economy.

GDP is expected up 1.7 percent at an annual rate in Q4.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no quarterly flash estimate and the first report is typically not issued until around the end of the second month after the reference period. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of the GDP expenditure components.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. Unlike the U.S., Canada produces only one estimate per quarter once full data are available for all components. Most production reports that lead to Canadian GDP are released before the official GDP number. Therefore, actual GDP figures usually confirm expectations. However, an unexpected release can move markets due to the significance of the figure.

GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Robust GDP growth signals a heightened level of economic activity and often a higher demand for the domestic currency. At the same time, economic expansion raises concerns about inflationary pressures which may prompt monetary authorities to increase interest rates. Thus positive GDP readings are generally bullish for the Canadian dollar, while negative readings are generally bearish.