The Canadian economy expanded 0.6 per cent in November on a month-over-month basis, propelled by strong growth across essentially all sectors. Canadian real GDP is now 0.2 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy was essentially flat in December.
At its most recent meeting, the Bank of Canada noted that the slack in the Canadian economy has been largely absorbed. Growth in the economy accelerated in the fourth quarter with real GDP growth tracking at 6.4 per cent annualized. Even with an expected Omicron driven slowdown in the first quarter of 2022, the Canadian economy is clearly on a very strong growth path. With inflation elevated and the robust growth, the Bank of Canada will begin raising its overnight rate at its March 2nd meeting, continuing quarterly rate hikes until the overnight policy rate reaches 1.75 per cent. Canadian 5-year fixed rates have already risen substantially, returning to their pre-pandemic level of about 2.9 per cent.
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