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Canada’s economy began the year on a steady footing, with modest growth supported by strength in energy and construction, even as manufacturing activity declined.
According to Statistics Canada, real gross domestic product rose 0.1% in January, following a revised 0.2% increase in December. The reading came slightly above expectations, indicating resilience in key sectors despite ongoing headwinds.
Energy and Construction Drive Growth
Goods-producing industries led the expansion, rising 0.2% on the month. The energy sector was a key contributor, with output increasing 1.2% as crude production surged in Newfoundland and Labrador and Saskatchewan.
Construction also remained a strong performer, posting its third consecutive monthly gain with a 1.1% increase. Growth was driven by elevated residential building activity and engineering projects, even as the housing market showed signs of cooling with its first decline in ten months.
Economists noted that the strength in these sectors helped offset broader weaknesses in the economy.
Manufacturing Drag Weighs on Output
The overall growth was partially held back by a 1.4% contraction in manufacturing, largely due to extended holiday shutdowns at automotive plants in Ontario. The slowdown in auto production had ripple effects across related industries, including wholesale trade and machinery manufacturing.
This divergence highlights the uneven nature of the recovery, with resource-driven sectors outperforming industrial activity.
Services Sector Hit by Seasonal Factors
On the services side, extreme winter weather disrupted transportation and air travel, weighing on activity. However, early indicators suggest that these effects may be temporary, with February data pointing to a rebound as manufacturing activity normalizes.
Financial Sector Supported by Foreign Investment
Strong foreign demand for Canadian debt provided a boost to the financial sector, which recorded its fastest growth since late 2025. Increased international investment in Canadian bonds helped the finance and insurance sector expand by 0.5% in January.
Outlook Remains Stable
Preliminary estimates from Statistics Canada indicate that GDP likely grew by 0.2% in February, suggesting continued momentum into the first quarter.
Economist Katherine Judge noted that current trends place first-quarter growth broadly in line with projections from the Bank of Canada, which expects GDP to expand at an annualized pace of just under 2%.
Market Implications
Canada’s growth outlook remains supported by commodity strength and resilient investment flows, but challenges in manufacturing and external risks could continue to weigh on the broader economic trajectory.
