Canada’s economy grew by 2.2 per cent on an annualized basis in the first quarter, Statistics Canada said on Friday, expanding at a rate faster than expected.
The growth was primarily driven by exports as companies in the United States rushed to stockpile before tariffs by U.S. President Donald Trump.
But an increase in imports that led to inventory build-up, lower household spending and weaker final domestic demand indicates that the economy was battling on the domestic front.
Economists have warned that as tariffs continue on Canada, this trend will persist.
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 interest rates.
“I think the bottom line here is the economy held up better than most most had expected. We were looking for a decent first quarter but it was better than decent,” Douglas Porter, chief economist at BMO, wrote in a note to clients.
“We can take out the details of the first-quarter numbers — they’re not nearly as strong as the headline would suggest,” he said.
“But still the overall number is nevertheless important here. There’s no real sign of distress in the economy from the GDP figures and I think that’s the most important message.”
Tariff flip-flop upped exports, imports
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 first-quarter GDP to expand by 1.7 per cent and by 0.1 per cent in March.
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, Statistics Canada said.