New data released by Statistics Canada on Tuesday suggests the economy was rebounding in the first few months of the year after a mild contraction to close 2025.
The agency said real gross domestic product edged up 0.1% in January, helped by strength in goods-producing industries, which expanded by 0.2%.
Looking ahead, the agency added that its preliminary estimate for February suggests the economy grew 0.2% for the month, though it cautioned the figure would be revised.
Statistics Canada’s initial estimates for January published last month expected real GDP to be relatively flat to start 2026.
The gain for the month came as mining, quarrying, and oil and gas extraction grew by 1.2% in January, boosted by activity in oil and gas extraction which improved by 1.6%.
However, the manufacturing sector contracted 1.4% due to weaknesses in durable-goods and non-durable-goods manufacturing industries.
Services-producing industries were essentially unchanged in January, as gains in retail trade and finance and insurance were offset by losses in wholesale trade and transportation and warehousing.
Statistics Canada estimated the economy contracted 0.5% on an annualized basis in the final quarter of 2025.
“Canada’s economy looks to be off to a slightly better-than-expected start in 2026 after a lacklustre fourth quarter,” TD Bank economist Marc Ercolao said in a note to clients Tuesday.
Ercolao said the January GDP figures should not affect the Bank of Canada’s next interest rate decision set for April 29.
The central bank held its benchmark policy rate steady at 2.25% on March 18 and signalled it was taking a wait-and-see approach to gauge how the Iran war and ensuing oil shock will affect inflation and economic growth.
Ercolao said the economic outlook in Canada is “highly dependent on how long and severe the conflict becomes.”
With growth in the first quarter of 2026 tracking in line with the Bank of Canada’s forecasts, Ercolao said TD Bank expects the central bank is done lowering interest rates.
Bradley Saunders, North America economist at Capital Economics, said in a note that the solid GDP readings to start the year will allow the Bank of Canada to focus more on the possibility of spreading price pressures from the war, rather than the need to support a weakening economy.
The central bank said it would look through a short-term inflationary shock from spiking energy prices, but Saunders said “any signs of price pressures broadening are now more likely to be met with policy tightening.”