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Real GDP Starts the Year Off Strong

Canadian Economics

By: Viktor Cicman

    

  • Real gross domestic product (GDP) was up 0.4 per cent in January following an increase of 0.3 per cent in December. Goods producing sectors contributed the most to the increase, rising 1.1 per cent in January, with all industries expanding.
  • The mining, quarrying, and oil and gas extraction and manufacturing sectors were the largest contributors to growth. Mining, quarrying, and oil and gas extraction expanded 1.8 per cent, with all three subsectors expanding in the month. Oil and gas posted a particularly strong gain, rising by 2.6 per cent in January.
  • Meanwhile, the manufacturing sector expanded 0.8 per cent in the month. This was following two consecutive monthly declines, as the durable-goods manufacturing aggregate rebounded from last months drop.
  • Construction activity was also up in January, rising for the sixth time in seven months. Residential building construction continued its recovery and was the largest contributor to the increase, posting its fifth increase in six months and bringing activity to its highest level since November 2023.
  • However, services producing industries increased by only 0.1 per cent in January. Most service producing sectors showed weak growth or declines. Wholesale trade led growth after two consecutive monthly declines, rising 0.7 per cent. Public administration also increased, by 0.4 per cent.
  • Retail trade contracted 0.9 per cent after a strong rise in December, as activity in 6 of 12 subsectors decreased. Motor vehicle and parts dealers contributed the most to the sector’s decline in January. It was its first decline in four months with lower activity at new car dealers and automotive parts, accessories and tire stores.

Insights

January’s reading of GDP shows an economy growing at a healthy rate at 0.4 per cent, but uncertainty will hurt growth in the months—and possibly years—ahead. When considering the upbeat growth seen in the last quarter of 2024 and inflation around 2 per cent since the summer, the economy was poised for a better year in 2025. Employment also increased in January by 76,000 people, lowering the unemployment rate to 6.6 per cent. However, much of the growth seen in the month was attributed to strong export performance, as many American businesses were stockpiling goods to get ahead of possible tariffs. Looking ahead, this level of economic growth is unlikely to last, as uncertainty alone will cause businesses and consumers to be more cautious. Advanced real GDP estimates already show a flat reading for February.

The Bank of Canada governor warned that trade uncertainty with the United States is forcing the central bank to take a cautious, less forward-looking approach to monetary policy. The ongoing trade conflict has weakened consumer confidence, lowered stock indices, and increased inflation risks. Key sectors like manufacturing, energy, and other resources are particularly vulnerable to tariffs. Growing protectionism is also occurring from key trading partners outside of the United States. China recently announced 100 per cent tariffs on Canadian canola oil, oil cakes and peas, along with 25 per cent duties on aquatic products and pork in response to Canada’s tariffs on Chinese electric vehicles and steel and aluminum goods. In response to this insecurity, the central bank cut its policy rate to 2.75 per cent in March. Going forward, the Bank and policy makers will have to remain flexible as economic policies are changing quickly in 2025.

To learn more about Canada’s economic outlooks for the long-term or the next five year’s, please visit our Canadian Outlook.

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