Statistics Canada’s tally of economic output last year suggests Bank of Canada governor Tiff Macklem got his soft landing, but it looks like the economy could stay grounded for a while. Here’s what you need to know:  

The good: The agency reported that gross domestic product grew at an annual rate of one per cent over the final three months of 2023, reversing a decline of 0.5 per cent in the previous quarter. The agency’s flash estimate for GDP growth in January was 0.4 per cent, suggesting the economy has avoided a recession, despite the spike in inflation and interest rates over the past couple of years. 

The bad: The economy appears to have little momentum. GDP increased 1.1 per cent in 2023, down from 3.8 per cent in 2022 and the weakest growth since 2016, not counting the COVID-19 recession in 2020. The growth at the end of the year was driven by exports and automobile sales as dealers fulfilled orders that backed up during the supply chain snarls caused by the pandemic. Household spending increased 1.7 per cent last year, compared with 5.1 per cent in 2022, in part because Canadians spent less on international travel. Business investment declined for the sixth quarter since the start of 2022; investment in both machinery and equipment and intellectual property dropped in the fourth quarter. 

The bottom line: The household savings rate was 6.2 per cent in the fourth quarter, an unusually large cushion that represents both a margin of safety and a lack of confidence in the economy’s near-term prospects. The Bank of Canada predicted the economy would stall in the fourth quarter, so stronger growth could delay interest-rate cuts. 

However, the details below the headline data suggest inflationary pressures from the demand side of the economy are receding; notably, Statistics Canada said employee compensation rose 0.8 per cent in the fourth-quarter, the slowest pace since the second quarter of 2020. The big increase in exports suggests Canada could catch a tailwind from robust growth in the U.S., but imports were unusually weak, suggesting tepid domestic demand. Rate cuts are still in the offing, perhaps as early as the spring, and almost certainly by the summer.