January’s weak growth eases pressure for near‑term rate hikes
Canada’s economy barely grew in January, reinforcing expectations that the Bank of Canada would stay on hold at its April 29 decision even as markets debated the timing of the next cut.
Real GDP edged up 0.1% month over month, after 0.2% in December, with an advance estimate pointing to 0.2% in February.
Goods‑producing industries rose 0.2% while services were essentially flat, and only nine of 20 sectors posted growth as mining, quarrying, and oil and gas extraction, along with construction and utilities, offset a sharp pullback in manufacturing.
“The Canadian economy advanced by 0.1% m/m to start the year, a tick above the consensus expectation and the advance estimate,” CIBC economist Katherine Judge said.
“That was driven by strength in goods‑producing sectors, namely oil and gas extraction, mining/quarrying, and construction, which masked a decline in manufacturing.”
Judge said a “1.6% increase in oil and gas extraction GDP was broad‑based,” citing strong crude output in Newfoundland and Labrador and Saskatchewan, while coal mining and non‑metallic minerals also climbed.
At the same time, she said, “the manufacturing sector pulled back by 1.4% m/m, with auto production plummeting due to winter shutdowns and retooling,” leaving activity 4.6% below year‑ago levels and 8.6% below 2019.
Sector mix underscores a fragile expansion
The official breakdown showed construction up 1.1% in January, its third straight gain, with residential building, multi‑unit projects and non‑residential work all higher.
Retail trade grew 0.8%, led by general merchandise retailers and motor vehicle and parts dealers, while finance and insurance rose 0.5% on “record foreign investment in Canadian bonds.”
Extreme winter storms weighed on transportation and warehousing, which fell 0.7%, and real estate and rental and leasing posted its first decline in 10 months as existing‑home transactions dropped in Ontario and British Columbia.
Geopolitical shocks are reshaping Canada’s rate outlook.
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What it means for the next BoC move
Judge said the January print and February flash “leave Q1 GDP tracking roughly in line with the Bank of Canada's MPR forecast of just under 2%.”
However, she said GDP was only 0.6% above year‑ago levels and that “ample economic slack remains, which leaves the BoC on the sidelines despite an upcoming energy‑driven spike in the CPI.”
“With risks to underlying momentum, the BoC is likely to keep interest rates on hold until there are signs of a sustainable reduction in economic slack, likely into 2027,” Judge noted.
TD Economics economist Marc Ercolao reached a similar conclusion, saying, “Canada's economy looks to be off to a slightly better‑than‑expected start in 2026 after a lackluster fourth quarter.”
“Today's data shouldn't impact the Bank of Canada's next policy decision on April 29th,” he said, adding that the Bank has “reached the end of their interest rate easing cycle,” with the United States–Iran conflict keeping it focused on inflation risks rather than one month of GDP.
Taken together, January’s GDP data suggest neither a re‑acceleration strong enough to force imminent hikes nor a slump deep enough to bring fresh easing back onto the table.
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