Statistic Canada data show that Canada's economy grew more than expected in Q4

With the resignation of long-standing Canadian PM Justin Trudeau taking effect in recent days, following years of waning popularity for the once Golden Boy of international politics, coupled with the impending spree of Trumpian tariffs raring to snap at the heels of Canadian growth, many in the country have been holding an understandably pessimistic outlook on the future of Canada’s economy. Recent data released by Statistic Canada however, has in fact revealed that the nation’s economy saw impressive growth at the end of last year with a Q4 boost to GDP of 2.6%, far surpassing the expectations of financial experts. Considering this positive step for Canada’s economy, let’s take a look at which factors appear to be driving this growth and consider how Canada’s geopolitical uncertainty may also impact the country’s economic future.

What has driven end of year growth?

There are a number of factors that have helped to boost Canada’s economy across the back end of last year. Notably, household spending, which accounts for approximately 58% of total GDP, recorded its biggest boost in around three years rising an impressive 1.4% in Q4, driven largely by increased retail sales. Encompassing everything that Canadian’s spend their money on such as food, healthcare and leisure, household spending is a crucial indicator for positive economic activity, highlighting the confidence of everyday consumers.

Business investments have also seen significant uptake rising by 0.7%. While this figure may seem unimpressive, in a sector which has seen little to no growth over the last eleven quarters, this is like gold dust for those in corporate business, providing some positivity in what has been a stagnant area. Machinery and equipment is one industry which has seen the most impressive growth with investments rising by 4.2%. Elsewhere, the continued rise of Canadian iGaming continues to attract significant investment as well. As provinces like Alberta look to follow Ontario’s regulated online gambling model, exciting online platforms and $10 deposit casinos could soon provide a further boost to the Canadian economy.

Canada’s impressive supply of precious metals and energy resources continues to prop up the economy, with the demand for its stores of critical minerals only growing as the global requirement for clean technologies increases. Because of this, exports have witnessed a quarter-over-quarter growth of 7.4%. With all the furor surrounding US export tariffs on Canada, continued growth in exports has not only boosted Canada’s economy but also instilled a confidence in its ability to withstand any pressure from tariffs from the White House.

Assessing the impact of US tariffs

In the face of widespread export tariffs announced by President Trump following his inauguration in January this year, the strong economic relationship between the two North American nations, which in 2023 amounted to over $900 billion worth of goods and services traded, has been left more uncertain than ever. For Canada, the positive economic growth experienced at the end of last year has indicated a resilience to the impact of tariffs, however, concerns still remain as to whether this apparent economic momentum could be halted as further export costs are implemented.

The proposed 25% levy on Canadian automotive production could have huge consequences for the country. As one of Canada’s largest export sectors, employing around 500,000 people and contributing over $18 billion to Canada’s GDP, the increased costs associated with the US tariffs could lead to mass job losses and significantly impact the strength of the Canadian economy. With nearly 80% of all Canadian made cars destined for the US market, automotive companies will either need to diversify their customer base or risk significant revenue losses. There are some positive signs however, with Trump already having to delay the tariffs by a month after pushback from America’s big three carmakers. Many will be keeping a close eye on howe this continues to develop.

Canadian steel and metals manufacturing has also been subject to tariffs by the US, which could lead to higher manufacturing costs for Canadian producers, ultimately making them less competitive in the global market. However, at current the full impact is hard to assess. The extent of the levy has swung chaotically from as high as 50% back down to 25%, and with Canada retorting with $29.8 billion worth of retaliatory tariffs in recent days, it feels as though the story is far from over.

Canada’s upcoming elections

Another key political moment that will no doubt impact Canada’s economic plans going forward will be the result of the upcoming election scheduled to take place later this year. With approval ratings for Trudeau and his Liberal Party coming to an all-time low as recently as December 2024, at a miserly 16%, it has looked increasingly likely that the Conservatives led by Pierre Poilievre would take charge of government. A win for Poilievre, a right-wing populist more akin to the politics of Donald Trump, could prove substantial for the Canadian economy, possibly bringing them back closer to the US while also potentially following them into a policy of isolationism.

Remarkably however, the tables of Canadian politics appear to have turned once more. In what many are seeing as a retaliatory reaction to US tariffs imposed on the nation, the Liberal party and its new leader Mark Carney are on the charge, looking to claw back the gains made by the Conservatives. With the odds neck and neck between Carney and Poilievre, the long-term future of Canadian economic policy hangs in the balance.

It is clear that Canada is at a vital moment in its modern history, with the impact of US tariffs and the emergence of populist leaders both next door and at home threatening to alter the way in which the Canadian economy functions. The nations unexpected growth last year however has been welcomed across the country, giving those in government as well as everyday Canadians the confidence that their economy can weather any storms that may potentially be coming their way. As events continue to unfold day by day, Canadians will be eagerly following what comes next.