One chief economist says lower interest rates spurred higher than expected growth in Canada’s economy during the final quarter of 2024, but the threat of tariffs could weigh on growth in the first quarter.

On Friday, Statistics Canada reported that real gross domestic product (GDP) rose by 2.6 per cent on an annualized basis in the fourth quarter, outpacing expectations. Real GDP came in higher than the Bank of Canada’s expectations of 1.8 per cent annualized. Third quarter GDP figures were revised up to 2.2 per cent annualized, up from initial estimates of one per cent.

Pierre Cléroux, chief economist at the Business Development Bank of Canada, said in an interview with BNN Bloomberg Friday that the figures for the third and fourth quarters came in higher than expected and “we are a bit surprised.”

“The numbers are very good; this is the impact of lower interest rates. We can see that in the fourth quarter, we saw the positive impact of lower interest rates, so consumption is increasing, real estate investment is increasing as well, even business investment. So, this is the good news,” he said.

“It means that the Canadian economy is performing very well, but of course, this is before the uncertainty that we have right now around the tariffs. So, the first quarter of 2025 will be probably lower than that.”

In June of last year, the Bank of Canada began a rate cutting cycle, reducing its key policy rate from a high of five per cent to three per cent by January 2025.

According to Cléroux, price stability has been largely restored in the Canadian economy, pointing to inflation running at 1.9 per cent and noting that the headline rate “has been around two per cent for the last six month.”

“We’re back to price stability in Canada. There’s no reason for the Bank of Canada to keep interest rates higher than what it should be. So, we are still expecting that the bank will reduce its rate in the next announcement and in the next few months we should have a policy rate around 2.5 per cent next summer,” he said.

On Thursday U.S. President Donald Trump said he plans to impose tariffs on Canada and Mexico starting Tuesday, including a 25 per cent tariff on all imports from those countries, with a lower 10 per cent tax on Canadian energy products.

Tu Nguyen, economist at RSM Canada, said in a statement to BNNBloomberg.ca Friday that without tariffs the Canadian economy would enter 2025 on “solid footing.” She said the threat of tariffs could weigh on growth and impact investment decisions.

“The Bank of Canada’s next rate decision will come down to whether tariffs come into effect next week. Absent a broad-based tariff, the bank could feel comfortable taking a pause, although another cut might be necessary if tariffs occur,” she said.

With files from The Canadian Press and The Associated Press