A Rapidly Growing Domestic Economy Will Be Embraced by the BoC

Market Reactions to Recent Economic Data

When these figures were released, my immediate response in client discussions was that the outcome surpassed expectations, largely due to the underlying details. While headlines highlighted a 0.6% quarter-over-quarter decline in GDP (seasonally adjusted and annualized), this focus missed the more significant perspective from the Bank of Canada’s view. The broader market seemed to grasp the more important aspects, as evidenced by the minimal movement in bond yields and the Canadian dollar.

The main takeaway is that final domestic demand—which combines consumer spending, business investment, and government expenditures—showed notable strength. In the fourth quarter, it rose by 2.3% on a seasonally adjusted annualized basis, marking the most robust increase since the second quarter of 2025.