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The first quarter figures topped StatCan’s flash estimate for annualized growth of 1.5 per cent and beat calls for 1.7 per cent from a Reuters poll of economists.

"We did get a better number, overall," said CIBC chief economist Avery Shenfeld. 

"But when you dissect the details, it wasn't as impressive as it looked."

Threats of tariffs from the United States suffused the first quarter for Canada’s economy, particularly for the trade-sensitive automotive industry and steel and aluminum sectors.

Those import taxes and Canada’s retaliatory tariffs were initially applied in early March, though each have since faced a variety of adjustments and exemptions.

StatCan said fears around the looming trade war inspired both Canadian importers and exporters to rush to get ahead of tariffs.

Goods exports were up 1.6 per cent in the first quarter, the agency said, driven by increased shipments of passenger vehicles and industrial machinery and parts. Non-farm businesses were also building up their inventories, reversing withdrawals from the previous quarter and pushing GDP higher.

Shenfeld said he expects to see weakness in exports for the second quarter as inventories south of the border are now already stocked with Canadian products.

Hampering growth in the first quarter was the uptick in imports and a slowdown in housing resale activity.

Ownership transfer costs, which represent resales, were down 18.6 per cent quarterly – the largest drop in roughly three years.

Rates of household spending and saving were both slowing meanwhile in the first quarter amid weaker income gains, StatCan said.

BMO chief economist Doug Porter said in a note to clients that despite the strong headline figures, the details of the Q1 GDP print are less rosy on closer examination.

Final domestic demand, which strips out inventories and net exports, was down 0.1 per cent annualized in the first quarter, he noted.

Annualized real GDP figures for the final quarter of 2024 were revised down by half a percentage point, StatCan said, and other quarters from last year were also adjusted in Friday’s release.

Figures for March show growth of 0.1 per cent in real GDP, rebounding from a slight contraction in February, amid a boost in mining, quarrying and oil and gas extraction.

StatCan’s advance estimates see the economy also growing 0.1 per cent in April despite what it expects was a fourth consecutive monthly decline in the manufacturing industry.

Porter said the April expectations for a gain, while modest, are "amazingly resilient" given pressure from the trade dispute.

The Bank of Canada will be parsing the GDP figures closely ahead of its interest rate announcement set for June 4.

The central bank tends to keep its policy rate elevated when it's worried about inflation resurging and lowers it when the economy needs a boost, but both are at risk amid the United States' upending of global trade.

The Bank of Canada hit pause on any changes to its policy rate at its last decision in April, saying at the time it needed more information on how tariffs were going to unfold and impact the economy.

Porter said that economists can "quibble" about the details, but the GDP figures so far in 2025 are showing "no obvious distress signals" for the Canadian economy.

"With this sturdy set of results, we are officially abandoning our call of a rate cut next week, and now look for the next rate trim eight weeks hence at the late-July decision," Porter wrote.

Money markets priced odds of an interest rate hold on June 4 at over 75 per cent as of Friday afternoon, according to LSEG Data & Analytics.

Stephen Brown, deputy chief North America economist at Capital Economics, is one of the holdouts still calling for a June rate cut amid signs the Canadian economy is set to falter.

He said in a note that the early April estimates suggest the economy could eke out 0.5 per cent annualized growth "at best" in the second quarter.

"The upshot is that there is still a strong case for the bank to cut next week although ... we clearly can’t rule out another pause as the bank awaits for more information," he wrote.

Shenfeld said that recent signs of weakness in the labour market should tell the Bank of Canada there's "a case to be made for cutting rates," but he expects a rate hold next week.

Even if the central bank thinks an economic slowdown is likely to follow, it has said it's going to be less forward-looking than usual as it waits for more clarity on the trade disruption.

That leaves it with unexpectedly strong GDP figures and signs of core inflation heating up — signs that point in favour of keeping rates a bit more elevated, Shenfeld said.

RBC economists Nathan Janzen and Abbey Xu wrote in a note that the rate decision will be a "close call," but a second consecutive hold looks more likely than a cut.

This report by °µÍø½ûÇø was first published May 30, 2025.