Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Today’s release of the monthly GDP shows that the Canadian economy was strong ahead of the tariff shock. However, the preliminary estimate suggests that the economy stalled in February. Nevertheless, given the recent growth dynamic, growth in 2025Q1 is estimated to be slightly above 2% q-o-q ar. With population growth having slowed significantly in recent quarters, the robust growth suggests that GDP per capita improved slightly at the start of 2025.
The Canadian economy was on a strong footing ahead of the trade conflict with the US. Some of this strength may be due to some economic activity being brought forward ahead of the tariffs to build up some inventories. The extreme uncertainty seen in February and March suggests that growth is likely to be weaker going into Q2, which could lead to an economic contraction.
Overall, the strength in the economy at the start of the year does not alter the Bank of Canada’s view that it will need to balance the deflationary impact of the tariffs, due to weaker economic activity, against the inflationary pressures arising from higher costs resulting from the tariffs. It is clear from recent comments by Gov Macklem that, at this point, the BoC is more concerned by the inflationary risks and suggests that without further meaningful tariffs being imposed in the coming weeks, it is likely the BoC will keep its policy rate unchanged at the April meeting.
While the BoC could take a pause, we believe that the general direction for interest rates is likely lower. As we wrote (see Searching for the terminal rate), significantly slower population growth in 2025 and 2026 will be an important drag on the economy, pushing potential growth and the neutral rate lower. This means that the current policy rate level is likely to become restrictive as population growth slows.
For Alberta, the details available in the report suggest that economic activity likely outperformed the rest of the country in January due to strength in oil and gas extraction and pipeline activity. Economic activity in the province remains supported by strong population growth and the tailwinds from high oil revenues.
The monthly GDP grew to 0.4% m-o-m (+2.2% y-o-y), weaker than the preliminary estimate. The details show that 13 of 20 industrial sectors posted higher activity levels on the month. Statistics Canada notes that good producing industries contributed the most to this growth.
Statistics Canada’s preliminary estimate shows that GDP will be 0.0% in February. This suggests that growth in the first quarter of 2025 is likely to be around +2% q-o-q ar., in line with the Bank of Canada’s forecast from the January MPR.
The goods-producing side of the economy increased by 1.1% m-o-m in January.Higher activity in utilities (+2.7% m-o-m), natural resources extraction (+1.8% m-o-m), especially non-conventional oil (+3.6% m-o-m), and manufacturing (+0.8% m-o-m) were the main contributors to growth.
The services-producing side of the economy grew by 0.1% in February. The increase came mainly from higher activity in arts, entertainment and recreation (+1.1% m-o-m), wholesale trade (+0.7% m-o-m), educational services (+0.4% m-o-m), and accommodation and food services (+0.4% m-o-m). Declines were notices in retail trade (-0.9% m-o-m), information and cultural industries (-0.2% m-o-m) which offset some of the growth.
For Alberta, there is no specific data in the report. However, we can make an assessment based on activity in some key industries specific to Alberta. The rise in oil and gas extraction activities suggests that Alberta economy likely overperformed the rest of the country in January.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.