January 2025 GDP: Sprinting into a wall

Tariff-exposed sectors started the year strong, ramping up production to front-load shipments ahead of trade hits. But this early surge likely comes at the expense of future growth, raising questions about how long the momentum will last. The Bank of Canada’s rate cut was a smart insurance move, but with uncertainty around April 2 tariffs, it’s likely to hold steady—unless new shocks force its hand.

KEY TAKEAWAYS

• Real gross domestic product accelerated 0.4% in January, above expectations of 0.3%. This was broad-based with 13 of 20 sectors posting growth, with goods leading (1.1%) and services (0.1%) sectors up slightly on the month.
• Mining, oil, and gas extraction was the largest contributor to January’s growth, up 1.8% in January. Oil and gas extraction was the primary driver as synthetic crude demand rose alongside higher exports of natural gas and domestic deliveries. The utilities sector grew 2.7% on higher demand for electric power generation and transmission as colder weather drove demand for utilities.
• Construction grew 0.7% on the month due to higher construction of residential homes, specifically multi-unit dwellings.
• Retail trade was the largest detractor in January, down 0.9%, as motor vehicle sales declined 3.2% and less shopping at food and beverage stores (-2.6%). This could’ve been impacted by weather-related factors given the GST holiday was still in effect.

OUTLOOKS AND IMPLICATIONS

The advanced estimate for real GDP in February suggests a flat reading, putting the first quarter on pace to grow 2.1% q/q at an annual rate. This is slightly above the Bank of Canada’s forecast of 2% in their January Monetary Policy Report.

The economy is showing momentum was strong in manufacturing sectors who ramped up production to get some orders out ahead of the U.S. tariffs. This will pull forward growth this year, resulting in the next quarters to be much weaker. Combined with the February hours worked reported in the Labour Force Survey of -1.3%, there’s downside to Q1 GDP growth.

The outlook for the Canadian economy has deteriorated as tariffs now apply to many Canadian goods. The Bank of Canada lowering its policy interest rate again in March won’t have a major impact on activity. Broader challenges face the economy as we brace for impact on the President unveiling his plans for tariffs on April 2.

SUMMARY TABLES AND CHARTS