Canada’s economy expanded at an annualized rate of 2.2% in the first quarter of 2025, exceeding analysts’ expectations of 1.7%. This growth was primarily driven by a surge in exports, as U.S. companies accelerated stockpiling ahead of anticipated tariffs under President Donald Trump’s administration.
Despite the robust export performance, domestic economic indicators were less favorable. Household spending and final domestic demand showed weakness, while increased imports led to inventory build-up. Business investment in machinery and equipment, however, rose by 5.3%, indicating some resilience in capital expenditures.
On a monthly basis, GDP grew by 0.1% in March, following a 0.2% contraction in February. Sectors such as mining, oil and gas extraction, and construction contributed to the monthly gains.
The stronger-than-expected GDP figures have influenced monetary policy expectations. Markets now assign an 82% probability that the Bank of Canada will hold interest rates steady at 2.75% in its upcoming decision.
Analysts caution that while the headline GDP growth appears strong, underlying factors such as weak domestic consumption and government spending suggest potential challenges ahead. Economists anticipate modest growth of about 0.5% annualized in the second quarter, with ongoing trade uncertainties potentially impacting future performance.
The Canadian dollar appreciated against the U.S. dollar following the GDP release, marking its fourth consecutive monthly gain—the longest streak since May 2021. This reflects investor confidence in Canada’s economic resilience amid global trade tensions.
