Canada’s economy grew 2.2 per cent in the first quarter of 2025, Statistics Canada said on Friday. That maintained the pace recorded in the final quarter of last year and significantly exceeded estimates.
Economists had mixed takes on the data, with some arguing that strong exports fuelled by tariffs distracted from data showing weak domestic demand, while others saw signs of resilience and underlying strength in the economy. Views also diverged on how the Bank of Canada (BoC) will respond at its scheduled June 4 interest rate announcement.
Economists had expected the economy to grow 1.5 per cent on an annualized basis in the first quarter, according to consensus estimates published by RBC Economics.
“The key point here is that the GDP figures are sending no obvious distress signals so far in 2025,” BMO chief economist Douglas Porter wrote. “While we can certainly quibble around the details, the Bank of Canada will surely seize on the headline outcome as well as the decent gain for April.”
Real gross domestic product (GDP) increased 0.1 per cent in March, matching expectations. The flash estimate for April also came in at 0.1 per cent, which Porter deemed “surprisingly—nay, amazingly—resilient … in the very heart of the trade and election uncertainty.”
BMO no longer expects a rate cut next week, Porter said.
Given the deterioration in recent labour market indicators, we believe that the economy will struggle to post meaningful growth in the second quarter.Royce Mendes, Desjardins Group
Desjardins Group economist Royce Mendes argued that export data is not reliable given the trade war climate, so that “the reading on final domestic demand provides a clearer signal of the health of the economy.” That figure, Statistics Canada says, was flat “for the first time since the end of 2023.”
The domestic demand data “suggests that the economy was stalling even before feeling the full impact of tariffs,” Mendes wrote. “Given the deterioration in recent labour market indicators, we believe that the economy will struggle to post meaningful growth in the second quarter.”
Desjardins believes the BoC will cut rates by a further 25 basis points.
At RBC, economists Nathan Janzen and Abbey Xu noted that the quarterly growth was almost entirely due to strong January data, with February GDP contracting and March only “partially” recovering from there. Nonetheless, they said, “other ‘hard’ economic data (actual spending by households and businesses) has still been relatively resilient relative to plunging consumer and business confidence.”
