Canada’s Economy Surged in January, But Near-Term Growth Poised to Cool

Canadian economic growth started 2025 on strong footing, growing by 0.4% month-on-month (m/m). This was a tick above Statistics Canada’s and consensus expectations for a 0.3% m/m gain. In February, Statistics Canada estimates that the Canadian economy held flat.

January’s reading was broad-based, with output expanding in 13 of 20 industries. Growth in goods industries (+1.1% m/m) led the charge, while the services sector advanced by a modest 0.1% m/m.

On the goods side, mining/quarrying/oil & gas contributed most to the gain, led by oil & gas extraction (2.6% m/m). Meanwhile, the manufacturing sector grew by 0.8% m/m after two consecutive months of declines, and utilities registered a solid 2.7% m/m. The construction industry is seeing some positive momentum, led by a 1.4% m/m gain in residential building construction.

On the services side, wholesale trade (0.8% m/m) and public admin (0.3% m/m) were the biggest contributors to overall growth. Offsetting some of the positive effects was a 0.9% m/m decline in retail trade as spending on motor vehicles and parts dropped by a sizeable 3.2% m/m.

Key Implications

Make no mistake, the economic momentum that started in the fourth-quarter has clearly carried into the early stages of 2025. 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. Past this, the outlook is turbulent. There are clear downside risks to Canada’s economy, especially as the threat of widespread tariffs seems imminent come April 2nd.

The BoC has its work cut out for them. Under reasonable assumptions, we would expect the Bank to cut its policy rate by 25 bps over their next two meetings to support economic growth ahead of a worsening trade conflict. That could change if the U.S. administration reverses course on their tariff plans, but it’s something that appears unlikely at this point.