EconoFACTS

May 29, 2026 | 09:19

Cdn. Real GDP: Let's Get Technical ...

Economist

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter brings more than three decades of experience analyzing gl... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter brings more than three decades of experience analyzing gl... (Read more)

Canadian real GDP fell at 0.1% annual rate in Q1, well below consensus expectations and the flash estimate of growth of around 1.5%. All the headlines will be focused on the fact that this marks the second consecutive quarter of GDP declines, as Q4 was revised even lower to drop of -1.0% annualized (from -0.6%). To be sure, these are modest declines—the Q1 dip was barely there, and could be easily revised away—and, as StatCan pointed out, GDP actually expanded on a per capita basis in Q1. Still, the economy has contracted in three of the past four quarters, and real GDP was down 0.1% from a year ago last quarter. So, while there will be plenty of debate over whether this constitutes a recession (we would say "no, not really"), there is little debate that the economy has struggled to make any headway over the past year amid the ongoing trade conflict.

Now for some of the details: The Q1 weakness was largely driven by a surprise decline in government spending and investment. Government had previously been consistently strong, with big increases in investment the past few quarters, but fell at a 2.4% this quarter. Consumer spending was okay at +1.5%, while business investment continues to struggle, contracting 3.2%. It's no surprise that housing was weaker as well, down nearly 8%, with the tough winter weighing on an already heavy market. Net trade was also a big drag, subtracting about 3.8 ppts, while inventories neatly offset that by adding 4.3 ppts. That's a reversal from Q4. We would highlight the right-hand column in the attached table; note that the sources of weakness in the economy over the past year are exports (-4.1% y/y), business investment in M&E (-3.6%) and housing (-3.3%). The first two are direct results of the trade uncertainty, and the latter suggests that rate policy is certainly not overly loose.

There is no doubt that this is a soft result, but the weakness on the government side isn't unlikely to persist. The question is whether consumers held up in Q2 amid the spike in energy prices. It's too early to expect business investment to rebound, but if/when we get some certainty on trade, look for a rebound on that front.

There was a serious glimmer of hope on the monthly GDP figures, as the flash reading for April printed a nice 0.4% snapback. However, March also was below consensus at -0.1% (versus expectations of a 0.1% gain). A 2.1% drop in mining/oil/gas was the main culprit, alone carving 0.2 ppts from the headline. A 0.6% decline in construction weighed as well, while services were up a modest 0.1%. Disappointing, but the April pop is a solid start to Q2, with mining and oil & gas expected to drive the gain.

Bottom Line: There's no sense sugar-coating this sour result, as the economy has clearly been struggling to grow since the start of the trade war, with headline growth also blunted by the rapid slowdown in population. Government spending had been supporting growth the past few quarters, putting a floor under the economy, but that support wasn't there in Q1. Importantly, consumer spending held up in the quarter and is up a steady 2.0% y/y, but is now dealing with the energy shock. Overall, this should really throw a wet blanket on rate-hike talk, as the economy is in no condition to deal with higher rates. (Even if it's only a "technical recession" or a recession in name only, the market is still priced for rate hikes? Seriously?) A trade deal and/or lower energy prices would help support growth, but we can't necessarily rely on either just yet.

Table 1 - Canada — Real GDP

(qtr/qtr % change : s.a.a.r.)

Source: BMO Economics, Haver Analytics

Table 2 - Canada — Monthly Real GDP

(month/month % change)

Source: BMO Economics, Haver Analytics