Real GDP rose 0.4% in January, building on a 0.3% gain in December and slightly surpassing both Statistics Canada’s flash estimate and economists’ expectations.
The growth was broad-based, with 13 of 20 industries posting gains. Goods-producing sectors led the way with a 1.1% increase—their strongest monthly performance since October 2021—driven by mining, utilities, manufacturing, and construction.
Notable gains came from mining, quarrying, and oil and gas extraction (+1.8%), utilities (+2.7%), manufacturing (+0.8%), construction (+0.7%), and wholesale trade (+0.7%), all of which contributed to the strong showing in goods-producing industries.
Retail trade, which had been the largest growth contributor in December, pulled back in January with a 0.9% decline as half of its subsectors contracted. Service-producing industries edged up just 0.1% overall.
Economists say the economic momentum from late 2024 continued into the new year, helping to lift GDP further in January.
“The big gains left output 2.2% above year-ago levels, the fastest pace in nearly two years, and drumming home the point that the Canadian economy had been turning the corner thanks to the dramatic drop in interest rates since last June,” noted BMO’s Douglas Porter.
TD economist Marc Ercolao agreed, saying, “With the information we have at hand, Q1-2025 growth is tracking around 2.0% and in line with the Bank of Canada’s January MPR projections.”
However, that momentum may be short-lived.
Tariffs threaten to stall momentum
StatCan’s flash estimate for February shows no growth, with real GDP by industry “essentially unchanged.” The official data will be released April 30.
Despite the strong start to the year, economists agree with StatCan that growth could flatline in February.
“Past this, the outlook is turbulent,” Ercolao says. “There are clear downside risks to Canada’s economy, especially as the threat of widespread tariffs seems imminent come April 2.”
BMO’s Porter offers a similar take, noting that January’s growth was fuelled by earlier rate cuts—a boost that’s likely nearing its end.
“…with the trade war whipping onto the scene at the start of February, sentiment chilled abruptly, as did activity seemingly,” he notes. “We are bracing for something much tougher in coming months as consumer and business confidence has been hit extremely hard by the deep trade uncertainty.”
The growing uncertainty is making the Bank of Canada‘s next move increasingly difficult to predict, especially with new tariffs on the horizon.
Porter says the Bank is likely to hold steady for now, unless there’s a “material deterioration in the outlook following next week’s so-called reciprocal tariff announcements.”
Ercolao offers a slightly different take, expecting the Bank to deliver two 25-bps rate cuts in the coming meetings to cushion the economy ahead of a potential trade conflict. But like Porter, he notes that outlook hinges on how the tariff situation unfolds.
“That could change if the U.S. administration reverses course on their tariff plans,” he says, “but it’s something that appears unlikely at this point.”
For the latest interest rate forecasts from Canada’s major banks, visit CMT’s Bank of Canada rate forecasts page.
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Last modified: March 28, 2025