Canada showed surprisingly strong economic performance at the end of 2020. Will Bank of Canada raise rates sooner than later?

During the last two months of the last year, Canada showed unexpectedly strong results even with the challenges caused by new pandemic restrictions.

According to Statistics Canada, GDP was up by 0.7% in November compared to October, while economists surveyed by Bloomberg predicted only a 0.4% increase. Moreover, a preliminary estimate says the GDP rose by 0.3% in December, although economists expected a decline.

This data shows unexpected strength caused mostly from gains in the sector of resource production, even despite stricter measures taken to fight the second wave of COVID-19. Bloomberg says the fourth quarter showed annualized 8% growth, while the central bank predicted an increase by only 4.8%.

“With the exception of segments directly affected by the pandemic, the national economy is coping quite well,” – Royce Mendes, an economist at CIBC says. “However, the economy will only be able to outpace the second wave of the virus for so long.”

The Bloomberg poll shows that economists expect a 0.6% decline in the first quarter of 2021.

On Friday, after the report’s release, the Canadian dollar was up by 0.6% to $1.2760 against the U.S. currency.

The preliminary numbers for the quarter show that Canada’s economy also outpaced the U.S. results at the end of the previous year with its 4% annualized growth in Q4.

Canada’s economic activity for entire 2020 was down by 5.1%. Although it’s better than the forecasts, it’s still a stronger hit than a 3.5% decline reported in the U.S.

Based on above development some economists started to raise questions if Bank of Canada will be forced to review its plea to keep rates low until 2023.