Stronger than expected Canada Q4 growth has little to cheer about

Data released on Tuesday showed that Canada's Q4 GDP beat estimates, printed at +0.8%q/q annualized compared to consensus for 0.0%. December m/m GDP was also slightly firmer. But the detail was less encouraging.

Growth figure was boosted by the biggest drop in imports in six years-impacted by surging import prices owing to the weak loonie. A smaller than anticipated inventory drawdown also contributed.

Final domestic demand - GDP less net exports and inventories - actually declined in the period between October and December, reflecting big reductions in business investment, particularly in non-residential construction. Housing was the one bright spot in the economy, although new housing construction slowed.

The odds of a rate cut at next week's BoC meeting have been almost fully priced out (~4% chance of a 25bps move) and there is just a 1/3 chance of a cut priced by September (there was more than a full cut priced in just a few weeks ago).