By BDC
MONTREAL, Canada – Canada’s economy grew by 0.4 percent in March, according to preliminary estimates from Statistics Canada, fully offsetting a slowdown in February and taking growth in the first quarter to 1.9 percent.
The Canadian economy regained momentum in December as lower interest rates encouraged stronger residential investment and household consumption.
Then, as tariff announcements south of the border stoked uncertainty, the Canadian economy went on a roller-coaster ride in the first three months of the year.
Despite the turbulence, the first quarter growth in Canada was in stark contrast to the US economy, which recorded a 0.3 percent decline in GDP over the same period. The drop in the US was entirely due to an increase in imports in anticipation of the introduction of tariffs. US consumption and business investment remained strong contributors to growth, meaning that the economy continued to stand on solid foundations.
Exports rise in advance of tariffs
Canada’s international trade benefitted from American companies and customers stocking up on goods before tariffs came into effect. The result was a meteoric rise in Canadian goods exports in January and February, before dropping back to a level closer to historical norms in March.
The Canadian dollar also rose but remains at a level that is favourable to US exports, holding below US72 cents throughout the quarter.
Most of the tariffs between Canada and the United States have only been in place since mid-March. The Canadian economy could, therefore, slow in the second quarter, as US demand for Canadian products is cut by tariffs, a stronger currency and healthy US inventories built up during the previous quarter.
Costs were rising even before tariffs
Higher tariffs will continue to put pressure on business costs in the months ahead, which could ultimately be passed on to the consumer. The Producer Price Index started rising again at the beginning of the year and is approaching the peak reached in 2022, the height of the country’s recent inflation surge.
Among SMEs active in international trade, 68 percent have already put in place a sourcing strategy to improve their resilience in the face of tariffs, but 79 percent expect to see an increase in their costs, according to a BDC survey.
At the end of April, three-quarters of SMEs said trade tensions and tariffs were already having a negative impact on their sales. The impact is more pronounced among companies directly affected by US tariffs or Canadian retaliatory measures.
The job market stabilizes
Despite the high level of uncertainty and slowing growth prospects, businesse seem to be learning to live with and adapt to this new context. Although the proportion of businesses planning to increase investment in the coming year is still low by historical standards, it rose slightly between January and April.
Layoffs tend to increase during periods of economic slowdown or disruption. Of those who were employed in March, 0.7 percent had become unemployed in April as a result of a layoff. That’s a similar proportion as the same period in 2024.
In another sign that companies are adapting, employment picked up in April. More than 7,000 jobs were created in the country, but that was not enough to compensate for March’s losses.
Even so, the labour market is easing, which is not necessarily negative for business leaders since wage growth continues to slow (+3.4% in April year-on-year), which could help compensate for higher business costs elsewhere.
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