Canada’s first quarter GDP expands by 2.2% annualized rate, beating estimates

Canada’s economy in the first quarter grew faster than expected, data showed on Friday, primarily driven by exports as companies in the United States rushed to stockpile before tariffs by President Donald Trump.

But an increase in imports that led to inventory build-up, lower household spending and weaker final domestic demand indicate that the economy was battling on the domestic front. Economists have warned that as tariffs continue on Canada, this trend will persist.

The gross domestic product in the first quarter grew by 2.2 per cent on an annualized basis as compared with the downwardly revised 2.1 per cent growth posted in the previous quarter, Statistics Canada said.

This is the final economic indicator before the Bank of Canada’s rates decision on Wednesday and will help determine whether the central bank will cut or stay pat on rates.

Currency swap markets were expecting around 75 per cent chance the bank would hold its rates at the current level of 2.75 per cent, before the GDP data was released.

Markets, economists shift predictions on next week’s BoC rate decision after GDP report surprises to the upside

Trump’s repeated threats and flip-flops on tariffs since the beginning of the year led to an increase in exports and imports to and from the U.S.

Trump imposed tariffs on Canada in March, first on a slew of products and later specifically on steel and aluminum.

The GDP grew by 0.1 per cent in March after a contraction of 0.2 per cent in February. The economy is likely expected to expand by 0.1 per cent in April, the statistics agency said referring to a flash estimate.

The March growth was primarily driven by a rebound in the mining, quarrying, and oil and gas extraction and construction sectors.

Analysts polled by Reuters had expected the first quarter GDP to expand by 1.7 per cent and by 0.1 per cent in March.

The quarterly GDP figure is calculated based on income and expenditure while the monthly GDP is derived from industrial output.

The tariffs and the uncertainty around them started showing early signs of impact as the final domestic demand, which represents total final consumption expenditures and investment in fixed capital, did not increase for the first time since the end of 2023, Statscan said.

Growth in household spending also slowed to 0.3 per cent in the first quarter, after rising 1.2 per cent in the prior quarter.

The first quarter growth was led by a rise in exports, which jumped by 1.6 per cent after increasing by 1.7 per cent in the fourth quarter of 2024. Business investment in machinery and equipment also increased by 5.3 per cent which pushed the quarterly GDP higher.