08:54 AM EST, 02/28/2025 (MT Newswires) -- Canada's economy showed some evident sparks of life in the final quarter of 2024 as it responded to lower interest rates and a sales tax holiday, but that flame could still be extinguished in 2025 if the country faces a United States tariff wall, said CIBC after the release of Friday's data.

Q4 real gross domestic product advanced by 2.6% annualized, but that was held back by a drawdown in inventories, with final domestic demand running at a 5.6% clip, noted the bank.

Growth was broadly based, with major contributions from consumers, housing and business investment, and the results topped both CIBC forecast and Bank of Canada expectations.

On the monthly basis, the quarter closed with a 0.2% gain in December, helped by a surge in retail activity offsetting continued weakness in manufacturing, and January's advance reading of 0.3% month over month suggests that Q1 was off to a decent start, despite a pullback at the retail level, stated the bank.

That all points to the fact that absent the tariff threat, there would be substantial grounds for optimism over 2025 prospects and perhaps a good reason for the BoC to take a pause on rate cuts, added CIBC. However, Q1 will likely see a stall in capital spending due to tariff uncertainties, and a trade war could easily snuff out growth should Canada be hit with broad and significant tariffs.

That risk could dull market reactions to what was otherwise a better-than-expected report and will have the central bank still mulling over a March rate cut if the tariff news goes the wrong way, according to CIBC.