Last Friday, Statistics Canada (StatsCan) announced that Canada’s gross domestic product expanded over the first quarter of 2025. Canada’s economy was expected to expand but come under pressure as tariffs came into effect. Instead, a big jump in exports before tariffs helped growth. Despite the relatively strong growth in the first quarter, growth in the upcoming quarters is uncertain with tariffs persisting and consumer and business confidence falling. Here’s a deeper look at Canada’s first-quarter growth.

• Canada’s economy grew at an annualized pace of 2.2% in the first quarter of 2025. This topped the 1.7% increase economists had expected, based on a Bloomberg survey. First-quarter growth also exceeded the 2.1% growth in the final quarter of 2024, which was revised down by StatsCan.
• Exports surged higher as foreign purchasers frontloaded orders ahead of tariffs. Imports also increased but at a slower pace. Exports are expected to eventually pull back as tariffs from the US persist.
• The expansion in consumer spending was relatively soft. Household consumption rose by just 0.3% in the first quarter, down from the 1.2% increase in the previous quarter. With tariffs expected to weigh on economic conditions, consumer confidence fell sharply, which hindered consumer spending.
• Changing dynamics in the economic environment and tariffs on Canadian goods are also weighing on Canada’s manufacturing sector. S&P Global reported that Canada’s manufacturing sector contracted for a fourth straight month in May.

Markets are expecting Canada’s economy to begin moderating in the second quarter. First-quarter growth was driven by a rise in exports before tariffs, which offset weakness in other parts of the economy. On Friday evening, US President Donald Trump announced he was doubling the tariff rate on steel and aluminum, which could add more challenges to Canada’s economy. Despite stronger-than-expected growth in the first quarter, the Bank of Canada is expected to lower interest rates again on Wednesday.

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime.