A Canadian National Railway locomotive pulls a train through a rail yard in Vancouver, British Columbia. (Photo by Andrew Chin\/Getty Images) \u00b7 Andrew Chin via Getty Images <\/p>\n
Canada\u2019s economy grew 2.2 per cent in the first quarter of 2025, Statistics Canada said on Friday. That maintained the pace recorded in the final quarter of last year and significantly exceeded estimates.<\/p>\n
Economists had mixed takes on the data, with some arguing that strong exports fuelled by tariffs distracted from data showing weak domestic demand, while others saw signs of resilience and underlying strength in the economy. Views also diverged on how the Bank of Canada (BoC) will respond at its scheduled June 4 interest rate announcement.<\/p>\n
Economists had expected the economy to grow 1.5 per cent on an annualized basis in the first quarter, according to consensus estimates published by RBC Economics.<\/p>\n
“The key point here is that the GDP figures are sending no obvious distress signals so far in 2025,” BMO chief economist Douglas Porter wrote. “While we can certainly quibble around the details, the Bank of Canada will surely seize on the headline outcome as well as the decent gain for April.”<\/p>\n
Real gross domestic product (GDP) increased 0.1 per cent in March, matching expectations. The flash estimate for April also came in at 0.1 per cent, which Porter deemed “surprisingly\u2014nay, amazingly\u2014resilient \u2026 in the very heart of the trade and election uncertainty.”<\/p>\n
BMO no longer expects a rate cut next week, Porter said.<\/p>\n
\nGiven the deterioration in recent labour market indicators, we believe that the economy will struggle to post meaningful growth in the second quarter.Royce Mendes, Desjardins Group<\/p>\n<\/blockquote>\n
Desjardins Group economist Royce Mendes argued that export data is not reliable given the trade war climate, so that “the reading on final domestic demand provides a clearer signal of the health of the economy.” That figure, Statistics Canada says, was flat “for the first time since the end of 2023.”<\/p>\n
The domestic demand data “suggests that the economy was stalling even before feeling the full impact of tariffs,” Mendes wrote. “Given the deterioration in recent labour market indicators, we believe that the economy will struggle to post meaningful growth in the second quarter.”<\/p>\n
Desjardins believes the BoC will cut rates by a further 25 basis points.<\/p>\n
At RBC, economists Nathan Janzen and Abbey Xu noted that the quarterly growth was almost entirely due to strong January data, with February GDP contracting<\/a> and March only “partially” recovering from there. Nonetheless, they said, “other ‘hard’ economic data (actual spending by households and businesses) has still been relatively resilient relative to plunging consumer and business confidence.”<\/p>\n
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Janzen and Xu wrote that the BoC decision will be “a close call,” but with today’s data “better than feared” and core inflation in April higher than forecast<\/a>, they suspect “a second consecutive hold” is more likely.<\/p>\n
According to Reuters<\/a>, currency swap markets nudged up odds for the BoC to hold to 82 per cent. The odds were at 75 per cent before the data were released.<\/p>\n
The importance of exports to the growth figure is clear. CIBC economist Andrew Grantham cautioned that while real GDP growth was “solid,” the number was “flattered by a surge in exports as companies looked to front-run potential U.S. tariffs.” Desjardins’ Mendes also noted that “it was Americans who drove Canadian economic growth,” with U.S. firms stocking up as tariff threats mounted.<\/p>\n
Exports grew 1.6 per cent in the quarter, Statistics Canada reported, highlighting the effect of “looming tariffs” on export growth of passenger vehicles (up 16.7 per cent) and industrial machinery, equipment and parts (up 12.0 per cent).<\/p>\n
The quarterly growth came in above Bank of Canada’s forecasts. The central bank expected real GDP to grow 1.8 per cent on a quarterly annualized basis, according to its latest Monetary Policy Report (MPR).<\/p>\n
The Friday data also include a revision to fourth quarter 2024 growth, which at the time came in above expectations<\/a>, adjusting the figure from 2.6 per cent to 2.1 per cent.<\/p>\n
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf<\/a>.<\/p>\n
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