Canadian Economic Growth (Real GDP Q1 2026)

Canadian real GDP fell by 0.1 per cent in March, after growing by 0.2 per cent in February. Goods-producing industries contracted by 0.8 per cent, partially offset by service-producing sectors edging up by 0.1 per cent. Sectoral growth was led by wholesale trade (1.8 per cent), while the biggest detractors to growth came from mining, quarrying, and oil and gas extraction (-2.1 per cent), forestry and agriculture (-1.1 per cent), and construction (-0.6 per cent). Output for the offices of real-estate agents and brokers fell by 0.9 per cent month-over-month. Preliminary estimates suggest that real GDP by industry increased by 0.4 per cent in April.
     
Real GDP was largely unchanged in the first quarter of 2026, registering an annualized growth rate of -0.1 per cent. Contraction was driven by an uptick in imports and continued weakness in business capital investment. Household spending remains resilient, rising by rose 0.4 per cent in Q1, driven by higher expenditures on food and financial services. Total capital investment decreased by 1.1 per cent, as previous public spending on defense systems and private investment. Meanwhile, business investment declined by 0.7 per cent, marking a fifth consecutive quarter of contraction. However, investments into both residential and non-residential structures fell by 2.0 and 0.8 per cent, respectively. The household savings rate slowed to 3.5 per cent, as disposable income growth was outpaced by nominal spending by 0.3 per cent, bringing the overall saving rate to its lowest level since the first quarter of 2024.

Canada’s economic performance in Q1 marks a second consecutive quarter of annualized growth dipping below 0 for a second straight quarter, sharply underperforming the Bank’s projection of 1.5 per cent growth. Behind the headline number, increases in imports was the largest drag on growth, while final domestic demand also weakened. Household spending remains fairly robust, with income growth being outpaced by consumption. While a slowdown in government spending was expected after purchasing new weapons systems last year, private residential spending has contracted by over 2 per cent in each of the last two quarters, reflective of weak resale activity throughout the country. Taken together, while a gold-driven surge of imports is likely an anomalous headwind, further weakening of domestic demand is worth note, and will likely need to improve looking ahead for Canada to avoid a third straight contracting quarter. Absent the Iran conflict, the Bank of Canada would likely lower its policy rate to address downturns in both the economy and labour market. However, its decisions will be largely dictated by the severity of the price shock on Canadian inflation. Overall, we tentatively expect another rate hold from the Bank in June.