Canadian GDP ticked higher by 0.1% month-on-month (m/m) in January slightly edging out Statistics Canada’s advanced guidance and market expectations for a flat reading.
Compositionally, 9 of 20 industries registered an increase on the month. Goods industries rose for a second consecutive month (0.2% m/m), while the services sector recorded no growth.
Oil and gas extraction (+1.6% m/m) and the construction sector (+1.1% m/m) pushed the overall goods sectors higher in January. This offset the contraction in the manufacturing sector, dragged lower by motor vehicles and parts manufacturing (-10.8% m/m).
On the services side, decreases in wholesale trade (-1.2% m/m), transportation and warehousing (-0.7% m/m) and real estate (-0.2% m/m) were offset by solid gains in retail trade (0.8% m/m) and finance and insurance (0.5% m/m).
Advanced guidance calls for an acceleration in February’s real GDP growth to 0.2% m/m, led by a manufacturing rebound and continuing strength in mining and finance and insurance.
Key Implications
Canada’s economy looks to be off to a slightly better-than-expected start in 2026 after a lackluster fourth quarter. With January’s print and a flash estimate for February, Q1-2026 growth is tracking in-line with historical trend growth, a view shared by both us and the Bank of Canada. It’s worth noting that quarterly expenditure-based GDP growth has been particularly volatile due to sharp movements in trade and inventories, something not well captured in the monthly industry GDP accounts.
Today’s data shouldn’t impact the Bank of Canada’s next policy decision on April 29th. Instead, the recent U.S.-Iran war is keeping the BoC more forward looking, with the economic outlook highly dependent on how long and severe the conflict becomes. The Bank will closely monitor this shock – weighing downside risks to growth against the upside inflationary impacts – and stand ready to respond. For now, we maintain our view that the BoC has reached the end of their interest rate easing cycle.
