January GDP edges higher, but economists point to patchy growth and improving Q1 outlook
Canada’s economy opened 2026 with only slight forward movement, as real GDP rose 0.1% in January, with strength in resource and construction sectors offsetting deeper weakness in manufacturing and trade.
The gain followed a 0.2% increase in December and was powered by a 0.2% rise in goods-producing industries, while services output was effectively unchanged. The result underscores what economists describe as a patchy and narrowly supported expansion.
Statistics Canada’s figures reveal that growth in January was led by mining, quarrying, and oil and gas extraction, which climbed 1.2%, alongside a 1.1% increase in construction and a 0.8% rise in retail trade.
BMO Economics said the early-year performance highlights how resource industries and construction are carrying the expansion, even as other areas struggle to gain traction.
That strength helped the goods sector post a second consecutive monthly increase despite a steep 1.4% contraction in manufacturing, driven largely by extended shutdowns in the auto sector.
The decline in manufacturing—particularly in motor vehicle production—continued to ripple through other parts of the economy. Wholesale trade dropped 1.2%, while transportation and warehousing fell 0.7%, reflecting weaker goods flows and weather disruptions.
RBC Economics pointed to auto-sector disruptions as a key source of weakness, noting that shutdowns at Ontario plants weighed heavily on both manufacturing and wholesale activity, though early signs suggest a rebound as those disruptions ease.
TD Economics similarly expects manufacturing to remain under pressure in the near term, particularly in trade-sensitive regions, even as some improvement is anticipated later in the year.
Finance outpaces service industry peers
While the services sector was flat overall, there were areas of strength. Finance and insurance rose 0.5%, supported by strong market activity, while retail trade continued to expand.
BMO Economics noted that consumer-facing sectors have shown resilience, with retail activity continuing to post gains despite broader economic uncertainty.
Still, these increases were offset by declines in wholesale trade, transportation, and real estate, leaving overall services growth muted.
BMO’s team noted that GDP “nudged up 0.1%” in January, exceeding earlier expectations, while February’s preliminary reading of 0.2% suggests firmer momentum heading into the first quarter.
Even so, they cautioned that the economy is still “just keeping its head above water,” with growth modest and heavily reliant on a limited number of sectors.
The bank also highlighted that underlying gains are increasingly tied to areas such as infrastructure spending and public-sector-related activity, rather than broad-based private sector expansion.
CIBC Economics also stressed that recent GDP readings should be interpreted carefully, noting that headline figures have been “noisy” and influenced by temporary and sector-specific factors.
That dynamic was evident in January, where gains in energy and construction masked deeper weakness in manufacturing and trade-related sectors.
CIBC has also pointed to ongoing trade uncertainty and structural headwinds as factors likely to keep growth uneven, even as certain industries show signs of recovery.
Real estate decline
The real estate and rental sector declined 0.2% in January, marking its first drop in 10 months, as home resale activity weakened across the country.
Housing continues to be identified by economists as a potential drag on growth in 2026, with softer demand and affordability challenges weighing on activity.
Early estimates suggest GDP rose 0.2% in February, supported by rebounds in manufacturing and continued strength in energy and finance.
BMO has upgraded its expectations for first-quarter growth, while RBC expects output to improve as temporary disruptions fade.
However, economists broadly agree that risks remain. Higher energy prices, trade uncertainty, and housing market softness continue to cloud the outlook.
The overall picture remains one of gradual expansion, but with growth narrowly concentrated and uneven across sectors, leaving the economy vulnerable to further shocks.
