04:25 PM EST, 02/28/2025 (MT Newswires) -- The Toronto Stock Exchange on Friday rebounded from its first drop in four sessions a day earlier, running up a 1% gain after Canada's fourth-quarter gross domestic product came in stronger than expected even as the likely start to a tariff war with the United States on March 4 casts a long shadow over markets.

The S&P/TSX Composite Index closed up 265.21 points at 25,393.45 although more sectors were down, than up. The Battery Metals Index was easily the biggest loser, down 2.66%. Industrials, up 1.6%, and Financials, up 1.3%, led the gainers.

Given that U.S. President Donald Trump has said he plans to impose tariffs on Canada and Mexico starting Tuesday, including a 25% tariff on all imports from those countries, with a lower 10% tax on Canadian energy products, veteran market watcher, David Rosenberg, said Canada could use some good news.

Some, he noted, did come today with the release of Q4 real GDP, which expanded at a "healthy" 2.6% annual rate versus the consensus estimate for a rise of 1.7%. He also noted the "nice" upward revision to Q3 to now show a rise of 2.2% annualized, up from the initial estimate of 1.0%.

"But," Rosenberg said, "there really is no reason to celebrate as the local economy is going to be facing a severe test from the looming Trump tariffs (assuming he doesn't back away like he did a month ago ... The problem is that if he keeps on doing that, he will end up losing credibility and will be subject to "The Boy Who Cried Wolf" comparisons. In that sense, there are really very few market implications from this report which otherwise would have sidelined the Bank of Canada (its Q4 GDP growth forecast was +1.8%) and triggered a more lasting positive tone to the loonie -- which has barely budged north of the C$1.44 level."

Rosenberg said while the monthly GDP data did "disappoint a touch", with December coming in up 0.2% sequentially in real terms, under the consensus estimate for a 0.3% rise. He added this did wipe out the November drop and Statistics Canada is estimating a rise of 0.3% month over month pickup for January. That means the "build in" for Q1 real GDP growth is running at a 1.9% annual rate thus far, just under the latest BoC call of 2.0%.

There was, Rosenberg said, a surprising inventory drawdown in the Q4 data of $1.5 billion at a seasonally adjusted annual rate, he first since Q4 2020, and if not for that withdrawal, real GDP growth would have come in 'really hot' at a 6% annual rate. He noted the movement on the demand side was definitely firm: with housing up 16.7% at an annual rate, the best in nearly four years; business cape, up 17.9%; though after fall of 27.4% drubbing in Q3; exports, up 7.4%, and consumer spending was up 5.6%, on top of a 4.2% bounce the prior quarter.

"The bottom line," Rosenberg said, "is that the Canadian economy finished 2024 with some nice forward momentum, but there are early signs that the pace is fading a touch. If the Trump tariffs go through as advertised, today's number will soon be long forgotten. Then we have to tack on the added drag from the end to the sales tax holiday, which in the end, only borrowed growth from the future into the present -- and that present is now in the rear-view mirror."

Rosenberg added: "The only thing we can say about the GDP report, as positive as it was, is that it will go down as a relic and little else, one for the historical archives. The challenges ahead facing the Canadian economy are, in one word or less, daunting."

Elsewhere, David Doyle, head of economics at Macquarie, said while the positive GDP data is a "welcome development", he continues to see headwinds for Canada ahead from the U-turn in immigration policy, mortgage rate resets, and ongoing trade policy uncertainty with the United States. Despite the strong data, a 25 bps cut from the BoC remains his base case for the March 12 meeting, with further cuts to come in April and June. The Labour Force Survey due next week, as well as the state of trade policy with the U.S, will likely factor heavily into the upcoming decision, Doyle added.

Of commodities today, West Texas Intermediate crude oil closed lower amid market uncertainty over the impact of U.S. President Donald Trump's decision to impose a 10% tariff on oil and gas imports from Canada, its largest supplier, while tightening sanctions on Venezuela and Iran.

WTI crude oil for April delivery closed down $0.59 to settle at US$69.76 per barrel, while April Brent crude was last seen down $0.82 to US$73.22.

Gold traded lower for a second day late afternoon Friday as the dollar rose after a key U.S inflation measure eased last month. Gold for April delivery was last seen down $32.50 to US$2,863.40 per ounce, continuing a correction from the Feb.24 record high of US$2,963.20 per ounce.