Canada March GDP rises 0.1%; Q1 growth steady at 0.5%

Investing.com -- Canada’s economy posted a modest rebound in March, with real GDP edging up 0.1%, after a 0.2% contraction in February, according to data released by Statistics Canada. The monthly improvement helped boost overall first-quarter growth to 0.5%, while GDP rose at an annualized pace of 2.2%, slightly ahead of the 2.1% pace recorded in the final quarter of 2024, and above the Bank of Canada’s projection of 1.8%.

Quarterly growth was largely driven by strong goods exports and a buildup in business non-farm inventories. Although imports also increased, particularly for industrial equipment and passenger vehicles, the gain in net exports helped offset declines elsewhere, including in housing-related activity and tepid household consumption.

Goods-producing industries led the March recovery, advancing 0.2%, with notable gains in mining, quarrying, and oil and gas extraction, which climbed 2.2% after severe weather-related disruptions in February. The construction sector also posted a 0.5% increase, driven by new residential and industrial building activity, while support services for resource extraction businesses rose for a third straight month.

Services-producing industries rose 0.1% in March, bolstered by a 0.8% increase in retail trade and a similar gain in transportation and warehousing, which rebounded following February snowstorms in parts of the country. Accommodation and food services also saw a 1.4% uptick, as consumers returned to restaurants and travel, though consumption overall continued to show signs of moderation.

Household spending increased just 0.3% for the full first quarter, down from 1.2% in the prior period, with weak per-capita growth of 0.1%. This was driven by declining car purchases and restrained discretionary spending, even as wage gains, particularly in Western provinces, pushed compensation of employees up 0.8% on the quarter.

Residential investment dropped 2.8% in Q1, pulled lower by an 18.6% collapse in ownership transfer costs, an indicator of resale activity, marking the sharpest fall since the first quarter of 2022. On the other hand, new construction rose 1.7%, with notable strength in apartment building activity in Ontario.

Business investment in machinery and equipment surged 5.3% in the quarter, coinciding with increased imports and pre-emptive capital spending amid trade uncertainty tied to potential U.S. tariffs. Meanwhile, investment in non-residential structures, a key area of capital formation, fell 1.6%, led by a reduction in engineering projects linked to oil and gas producers.

Preliminary estimates suggest that GDP rose another 0.1% in April, though the outlook remains clouded by uneven sectoral performance and weakening domestic demand. With inflation stabilizing and the labor market showing signs of easing, the Bank of Canada is likely to weigh the mixed growth signals carefully ahead of its next policy decision.