By Ismail Shakil and Steve Scherer
OTTAWA (Reuters) -The Canadian economy unexpectedly stalled in the final three months of 2022, but likely rebounded in January, data showed on Tuesday, a result that backs up the Bank of Canada’s aim to keep interest rates on hold at its next policy meeting in March.
Annualized fourth-quarter gross domestic product was flat versus the previous quarter, Statistics Canada said, ending a streak of five consecutive quarterly increases. It is far below analysts’ median forecast for a 1.5% increase.
The result also came in below the Bank of Canada’s forecast for Q4 1.3% annualized GDP growth. The central bank has raised its benchmark interest rate at a record pace to tame high inflation, but last month it said it wanted to pause its tightening campaign.
The Q4 figures give “the BoC just a little bit of comfort that higher interest rates are working to slow demand, especially with the conflicting signals from the labor market over the last couple of months,” said Robert Both, macro strategist at TD Securities.
Canada added 10 times more jobs than expected in January, and both manufacturing activity and retail sales picked up the same month. The economy likely bounced back in January, expanding 0.3%, Statscan said.
“Today’s result simply reaffirms that the BoC will be on hold at next week’s decision, and if growth remains below potential – as we expect – they will likely stay on the sidelines,” said Doug Porter, chief economist at BMO Capital Markets.
The economy contracted 0.1% in December from November, also below analysts’ expectations that GDP would be unchanged in the month.
The Canadian dollar was trading 0.2% lower at 1.36 to the greenback, or 73.53 U.S. cents.
Quarterly GDP was dragged down by slower inventory accumulations and declines in business investment in machinery and equipment as well as housing, Statscan said. That offset higher household and government spending and improved net trade, the agency said.
Still, Statscan said the economy likely started 2023 on a stronger footing, with increases in sectors including mining, quarrying, and oil and gas extraction and wholesale trade indicating a 0.3% rise.
The Bank of Canada has forecast the economy to stall – and potentially tip into recession – during the first three quarters of this year.
(Reporting by Ismail Shakil and Steve Scherer, with additional reporting by Dale Smith in Ottawa and Fergal Smith in Toronto; Editing by Paul Simao and Mark Porter)
