OTTAWA — Canada’s economy grew 4.6 per cent in 2021, rebounding from its worst fall on record the previous year due to the pandemic, the government statistics agency said Tuesday.
Gross domestic product (GDP) rose 1.6% in the fourth quarter – or 6.7% at an annualized rate – as the economy was hit by a wave of the Omicron variant of Covid-19.
Quarterly growth was “a bit faster than expected,” Desjardins analyst Royce Mendes said in a research note, with the economy ending the year strong after contracting 5.2% (revised 5.4%) in 2020.
Several analysts also expressed surprise at preliminary data showing the economy managed to grow in January, driven by retail and construction, despite the reintroduction of Covid lockdowns in some provinces.
Mendes said momentum likely picked up in February and topped the Bank of Canada’s growth forecast for the first three months of this year as regions moved to ease public health restrictions.
But he also warned of the economic fallout from the war in Ukraine, mainly due to rising energy prices, and with “supply chains in Europe already affected”.
Last year’s economic growth, according to Statistics Canada, was spurred by business investment in engineering structures and home ownership transfer costs, as well as inventory accumulation.
Imports outpaced exports and growth in household spending was moderated by rising prices.
Canadians spent big on food, drink and clothing in 2021 as public health restrictions eased and people ventured outside their homes more.
Housing spending soared as many people worked from home and saved through less travel, and mortgage rates remained at record highs. This pushed new home construction, resales and renovations to near-record levels, but also pushed up mortgage debt by 10% to an “unprecedented” C$182 billion.
Wages rose 9.1% from 2020. But household disposable income fell slightly further in the second half of 2021 as governments began ending pandemic aid to workers and businesses.
Government revenue also rebounded by 11.4%, after falling 2.2% in 2020, while government spending fell by 1.9%.
On Wednesday, the Bank of Canada is expected to announce its first rate hike in years, from a low of 0.25%.