The Canadian economy outperformed expectations in the first quarter of 2025, growing at a rate of 2.2%, according to a Statistics Canada (StatsCan) report released Friday morning. Behind the gross domestic product (GDP) growth were increases in exports, as companies added inventory prior to the announcement of tariffs by the US, said StatsCan, adding business investment in machinery and equipment (up 5.3%) as well as mining, quarrying, plus oil and gas extraction (up 1.4%) helped drive growth. However, “higher imports and weak residential structure resale activity tempered overall growth in the first quarter,” said the StatsCan report. Driving the increase in exports were passenger vehicles (up 16.7%), industrial machinery, equipment and parts (up 12%). On the downside of exports were crude oil and crude bitumen (down 2.5%) and refined petroleum energy products (down 11.1%). "At the same time, travel imports fell 7% in the first quarter, as fewer Canadians travelled to the United States,” said StatsCan. Inventories in businesses, non-farm, increased, after recording withdrawals in the fourth quarter of 2024, with durable goods in the wholesale trade sector leading the inventory accumulation in the first quarter of 2025. .“The retail trade sector posted a small accumulation in inventory in the quarter, following withdrawals in the previous quarter. Industries in the manufacturing sector posted a slight withdrawal in the first quarter, albeit at a slower pace than in the previous quarter,” said StatsCan. Canadians slowed their household spending by 0.3%, after rising 1.2% in the last three months of 2024, however, growth in spending in the first quarter of this year was seen in rental fees for housing and financial services. A slowdown in resale housing in many markets across the country contributed to a 2.8% reduction in residential investments, mostly on the shoulders of an 18.6% decrease in ownership transfer costs. “This was the largest decline in ownership transfer costs since the first quarter of 2022 (down 34.8%), when housing resales were curbed by a string of interest rate increases,” said StatsCan. “Despite a decline in resale activity, new construction rose 1.7% in the first quarter of 2025, led by increased work-put-in place for apartments, primarily in Ontario. Renovations (up 0.5%) also edged up in the first quarter.” .Lead by a 2.7% drop in engineering structures, which coincided with a decline in investments in the oil and gas sector, business investment in non-residential structures declined 1.6%. "In contrast, business investment in non-residential buildings increased 1.1% in the first quarter, led by industrial structures, such as factories and plants,” said StatsCan. Employee compensation grew by 0.8%, with the fastest pace of growth seen in the western provinces. “Compensation of employees rose in all provinces and territories in the first quarter, except in the Northwest Territories including Nunavut (down 3.4%),” said StatsCan. “Wages grew at the fastest pace in Saskatchewan (up1.4%), Alberta (up 1.2%) and British Columbia (up1%). “Growth in the first quarter of 2025 was driven by higher wages in health care and social services (up 3.2%) and construction (up 2.3%), with retroactive payments in the health and social services sector in Quebec, said StatsCan. Bank of Canada Governor, Tiff Macklem will be analyzing the StatsCan data prior to the banks rate announcement on Wednesday, say economists at RBC Economics. .“The Bank of Canada's interest rate decision next week will still be a close call, but with economic data holding up better than feared – and inflation in April surprising broadly on the upside once controlling for the removal of the consumer carbon tax from energy products - a second consecutive hold on the overnight rate looks more likely than a cut at this stage,” wrote the economists in a note.
