Canada’s gross domestic product for January on Tuesday, and February trade data on Thursday will provide more clues on the economy’s trajectory in early 2026.
In line with Statistics Canada’s advance estimate, we expect GDP growth to have slowed to essentially flat in January after rising 0.2% in December.
Weakness was concentrated in the auto sector, where production disruptions at Ontario plants drove manufacturing and wholesale sales down 3.9% and 1.5%, respectively. Early indicators, however, point to a partial rebound in February as disruptions unwound.
Real estate agents and broker services also weakened, as unusually harsh weather dampened home resales in January. Strength in energy sectors offset these declines with Alberta’s non-conventional oil production and mining (excluding oil and gas) both rising modestly after contracting in December. Retail sales increased 1%, reflecting resilient household spending.
February indicators point to partial rebound
Spending resilience appears to have extended into February. Early indicators including our tracking of RBC card spending data , as well as Statistics Canada’s advance retail sales estimate (a 0.9% nominal increase) all point to improvement.
Other advance industry estimates also showed recovery. Manufacturing sales rose 3.8% in nominal terms, according to Statistics Canada, driven by strength in transportation equipment and food product manufacturing. Wholesale sales increased 2.3%, lifted similarly by higher auto and parts sales. Housing-related activity likely remained soft in February as home resales remained soft.
The Bank of Canada flagged downside risks to their 1.8% annualized GDP growth forecast for Q1 at the March meeting. After a weak January, improvements in activities in February and March as auto disruptions eased should still leave growth on balance in line with our forecast for a modest increase.
For February’s international trade data, we expect a narrowing in Canada’s trade deficit from $3.6 billion to $1.8 billion driven by a partial rebound in auto exports and higher oil prices. The deficit should continue to narrow in March after the Middle East conflict drove oil prices sharply higher.
We expect next week’s U.S. March payroll report to show a 50,000 increase in employment, partly driven by the end of the nurses’ strike. The unemployment rate is expected to remain steady at 4.4%, given subdued layoffs and stable initial jobless claims.
