Canada’s economy flexes while everyone freaks about tariffs, so no rate cut for you for now!

Canada's economy grew at an annualized rate of 2.2 percent in the first quarter of 2025, surpassing economists' expectations of 1.7 percent, according to Statistics Canada.

This growth was largely driven by a surge in exports, as businesses accelerated production and shipments ahead of anticipated US tariffs.

Quarterly, real GDP increased by 0.5 percent, matching the growth rate from the previous quarter. The uptick in exports was complemented by an accumulation of business non-farm inventories, suggesting companies were stockpiling goods in response to trade uncertainties.


However, domestic economic indicators painted a less optimistic picture. Household spending slowed to 0.3 percent in the first quarter, down from 1.2 percent in the previous quarter, with growth primarily in rental fees for housing and financial services. The household saving rate also declined to 5.7 percent, the lowest since early 2024.

Next interest rate decision

The Bank of Canada is set to announce its next interest rate decision on June 4. Given the stronger-than-expected GDP growth, many economists anticipate the central bank will maintain its current rate of 2.75 percent. Derek Holt, vice-president and head of capital markets economics at Scotiabank, noted, “Canada’s economy is strong enough for the Bank of Canada to remain on hold next Wednesday.”

Looking ahead, preliminary data for April suggests modest growth of 0.1 percent, indicating that the momentum from the first quarter may not carry forward.

Economists warn that the initial boost from pre-tariff stockpiling may wane, potentially leading to slower growth in subsequent quarters.

In the broader context, the Canadian dollar appreciated against the US dollar following the GDP report, reflecting investor confidence in the country's economic resilience. However, challenges remain, including ongoing trade tensions and domestic economic weaknesses.