After a challenging fourth quarter of 2025, data from Statistics Canada (StatsCan) showed Canada’s economy steadied just before the conflict in the Middle East intensified. Canada’s economy has come under pressure over the past year, largely due to trade disruptions with the US, which significantly dragged down trading with Canada’s largest trade partner. Still, Canada’s economy was able to eke out a small gain over the year, benefiting from a relatively resilient consumer and efforts to diversify trade beyond the US. Canada’s economy expanded at the start of 2026, according to data released yesterday from StatsCan.

• Canada’s economy grew by 0.1% in January over the previous month. This marked the second straight month of growth in economic activity, following a 0.2% increase in December.
• The economy benefited from a stronger goods-producing sector. Gains came from the construction and mining industries, which offset a drop in manufacturing. Manufacturing continues to be hindered by high US tariffs.
• On the other hand, Canada’s services sector moderated. The retail and finance industries saw improvement in January, but this was offset by a drop in the transportation industry.
• StatsCan estimated that Canada’s economy expanded by 0.2% in February, getting contributions from manufacturing, mining and financial services.

Economic activity in Canada seems to be on relatively solid footing to begin 2026. However, March brought along escalating tensions in the Middle East, which raised concerns about the global supply of oil and inflation. Higher inflation could weigh on consumer and business spending, which might impede the Canadian economy from returning to higher growth levels. The Bank of Canada is closely monitoring the impact of geopolitical tensions on inflation, the labour market and Canada’s economic activity, and has not ruled out moving interest rates in either direction this year.

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