Canada: Strong January GDP Growth, but the Path Ahead Remains Uncertain

January 2025’s healthy rise in GDP by industry was primarily thanks to goods-producing sectors, which advanced at the strongest pace since October 2021. Under the hood, the economy saw gains in resource extraction, manufacturing and utilities sectors. Resource extraction grew for the second consecutive month, on the back of strength in oil and gas. The manufacturing sector rebounded, largely driven by rising motor vehicle and primary metal manufacturing, a likely reflection of anticipated tariff uncertainty. In the services sector, wholesale trade rebounded after two consecutive monthly declines. Retail trade External link. fell back in January, following a December increase motivated by Canadians taking advantage of the final month for EV rebates and the temporary GST/HST cut introduced just before the holidays.

Looking ahead to February, the recent Labour Force Survey External link. showed almost no job gains—a sign of potential softening in the job market. This corresponds to weak flash estimates for real GDP and retail sales for the month from Statistics Canada. Note that our latest outlook for real GDP by expenditure shows growth broadly in line with the Bank of Canada’s (BoC) Q1 projection of 2.0% in the January Monetary Policy Report. Regardless, real GDP continues to lag population growth (graph 2).

Today’s GDP data is a sign of economic momentum continuing into early 2025, but this will likely go into reverse, especially as trade tensions with the US escalate. In addition, there are other downside risks posed by slower population growth and the impending wall of mortgage renewals about to hit Canadians this year. Consequently, we’re projecting External link. a mild recession in 2025, possibly starting as early as Q2. Still, with recent inflation data External link. showing lingering price pressures, we expect that the BoC will hold rates steady in April before resuming rate cuts later this year.