CIBC Sees Bank of Canada on Hold After Friday's GDP Data

09:04 AM EST, 02/27/2026 (MT Newswires) -- The Canadian economy contracted modestly in Q4, although it ended the quarter on a slightly better footing than originally estimated, said CIBC after Friday's gross domestic product data release.

The 0.6% annualized contraction in Q4 was slightly worse than the consensus and Bank of Canada forecast of 0.2% and 0.0%, respectively, although weakness was largely driven by inventories and as a result, the composition was better than the headline figure, noted CIBC.

Consumer spending rebounded by 1.7% annualized following a slight decline in the prior quarter, exports continued to recover from Q2's large drop and even business investment managed to rise slightly following three successive contractions, stated the bank.

Residential investment, however, fell to reverse most of the increase seen in the prior quarter. Final domestic demand rose by a solid 2.4%, although that followed a slight contraction in the prior quarter.

The quarter ended on a stronger footing than initially estimated, with December GDP rising 0.2% monht over month while consensus was for a 0.1% month-over-month increase, added CIBC. Manufacturing and wholesaling led the advance, although these gains only partly reversed declines seen in prior months and industry data for January points to renewed weakness in both areas.

The advance estimate of economy-wide GDP for January suggests a flat reading.

However, even with a stronger than expected handoff from December, Q1 GDP is still tracking only around 1% -- assuming modest growth rates in February and March -- which would be below the BoC's Monetary Policy Report forecast of 1.8%, according to the bank.

While the BoC has suggested that weak GDP readings are largely the result of structural rather than cyclical factors, that explanation will be harder to sell if progress on reducing unemployment stalls or reverses.

Overall, though, the more positive composition of Q4 GDP and solid December reading make Friday's data good enough for policymakers to maintain their current on hold stance, added CIBC.

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