The Canadian economy expanded by 6.7% q/q annualized in the final quarter of 2021, leaving real GDP for 2021 at a robust 4.6%.
A big driver of growth was the accumulation of business inventories (easing of supply chains), which grew by $11 billion (adding 4.2 percentage points to annualized growth).
International trade also grew at a decent clip, with exports up 13.4% (annualized) and imports rising by 14.4%. This was driven by increased motor vehicle production.
Household consumption came in at a disappointing 1% (annualized), as Canadians reduced spending on goods in favour of services.
Business investment grew at 7.9%, with residential structures up 10.2% and machinery and equipment up 4.7%.
Key Implications
The Canadian economy ended 2021 on a high note, with real GDP sitting just above pre-pandemic levels.
Strong growth at the end of the year provided a solid handoff to the new year, but the start to 2022 has been less than ideal. With the Omicron wave and subsequent lockdowns, we are tracking 2022 Q1 at just above zero growth. That said, the economy is bouncing back as restrictions have been eased. This should set up Canada to outperform over the remainder of 2022.
For the Bank of Canada, this report justifies its view that the economy has fully recovered the slack caused by the pandemic. The Bank will have this report in its back pocket as it prepares to lift the overnight rate tomorrow in spite of ongoing geopolitical risks.
