Economy expands at the sharpest pace in two years in January

GDP reading: GDP rose 0.4% month on month in seasonally adjusted terms in January (December: +0.3% mom s.a.), outpacing market expectations. January's outturn was partly caused by export front-loading ahead of U.S. tariffs and marked the joint-best reading since January 2023. On a seasonally adjusted annual basis, monthly GDP grew 2.2% in January, which was above December’s 2.1% expansion and marked the best result since February 2023.

Drivers: 13 of 20 sectors rose in January. Goods-producing industries expanded notably, led by increases in mining, oil and gas, and manufacturing. Moreover, services edged up.

GDP outlook: Preliminary data shows real GDP flatlining in February as gains in manufacturing plus the finance and insurance sectors offset declines in retail trade, real estate, and oil and gas extraction. Our Consensus is for quarter-on-quarter annualized growth to have slowed in Q1, dented by a softer rise in private spending and fixed investment. Absent a significant revision, economic growth in January–February over Q4’s average matches the sequential expansion tallied in the three months to December, hinting at upside risks to this forecast.

Panelist insight: TD Economics’ Marc Ercolao said: “Make no mistake, the economic momentum that started in the fourth-quarter has clearly carried into the early stages of 2025. With the information we have at hand, Q1-2025 growth is tracking around 2.0% and in line with the Bank of Canada's January MPR projections. Past this, the outlook is turbulent. There are clear downside risks to Canada's economy, especially as the threat of widespread tariffs seems imminent come April 2nd.”

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