OTTAWA (Reuters) -Canada’s economy in the first quarter grew faster than expected, data showed on Friday, primarily driven by exports as companies in the United States rushed to stockpile before tariffs by President Donald Trump.
But an increase in imports that led to inventory build-up, lower household spending and weaker final domestic demand indicate that the economy was battling on the domestic front. Economists have warned that as tariffs continue on Canada, this trend will persist.
The gross domestic product in the first quarter grew by 2.2% on an annualized basis as compared with the downwardly revised 2.1% growth posted in the previous quarter, Statistics Canada said.
This is the final economic indicator before the Bank of Canada’s rates decision on Wednesday and will help determine whether the central bank will cut or stay pat on rates.
Currency swap markets were expecting around 75% chance the bank would hold its rates at the current level of 2.75%, before the GDP data was released.
Trump’s repeated threats and flip-flops on tariffs since the beginning of the year led to an increase in exports and imports to and from the U.S.
Trump imposed tariffs on Canada in March, first on a slew of products and later specifically on steel and aluminum.
The GDP grew by 0.1% in March after a contraction of 0.2% in February. The economy is likely expected to expand by 0.1% in April, the statistics agency said referring to a flash estimate.
The March growth was primarily driven by a rebound in the mining, quarrying, and oil and gas extraction and construction sectors.
Analysts polled by Reuters had expected the first quarter GDP to expand by 1.7% and by 0.1% in March.
The quarterly GDP figure is calculated based on income and expenditure while the monthly GDP is derived from industrial output.
The tariffs and the uncertainty around them started showing early signs of impact as the final domestic demand, which represents total final consumption expenditures and investment in fixed capital, did not increase for the first time since the end of 2023, Statscan said.
Growth in household spending also slowed to 0.3% in the first quarter, after rising 1.2% in the prior quarter.
The first quarter growth was led by a rise in exports, which jumped by 1.6% after increasing by 1.7% in the fourth quarter of 2024. Business investment in machinery and equipments also increased by 5.3% which pushed the quarterly GDP higher.
(Reporting by Promit Mukherjee; Editing by Dale Smith)
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