09:08 AM EST, 02/21/2025 (MT Newswires) -- Although Canadian consumers seemed to be celebrating the sales tax holiday in December, there wasn't much of a hangover in January, according to Tiago Figueiredo at Desjardins.

Desjardins noted retail receipts rose 2.5% in December, "besting expectations" for a 1.6% advance. After two months of significant gains, automotive sales rose even further, possibly in part due to an expiring incentive to purchase electric vehicles. But, it said, even excluding that category, retail sales increased a "heady" 2.7%, well above expectations. Food and beverage retailers led the way higher after a rough November. But, overall, all nine subcategories rose over the month in both nominal and real terms. Desjardins added: "With this breadth, it's likely that consumers who had previously postponed spending in order to take advantage of the GST-HST holiday that began in mid-December made up for it in the second half of the month." Overall, it noted, sales rebounded 2.5% in volumes terms in December, bringing the 3-month annualized rate to 10.2%. As a result, per capita spending is increasing both in nominal and real terms after weakness earlier in 2024.

According to Statistics Canada's flash estimate, retail sales pulled back just 0.4% in January. Desjardins said with good prices up 0.5% over the month, that means that volumes likely fell roughly 0.9%. However, it added, part of that weakness may simply be due to cold weather keeping shoppers at home.

As a result of the strength in December, Desjardins is now tracking 1.9% GDP growth for Q4, one tick higher than the Bank of Canada's latest estimate. Desjardins continues to forecast 2.0% growth for the first quarter of 2025. It said: "While this reinforces our view that the Bank of Canada will hit the pause button in March, the strength seen may be ephemeral. The tax holiday might be pulling forward some spending that would have occurred later and the most acute concerns about a trade war with the US were likely not captured in this data."