Question Period Note: First quarter 2026 Canadian Economic Accounts and March 2026 Gross Domestic Produc

Real gross domestic product (GDP) was flat (-0.1% in annual rates) in the first quarter of 2026, following a 1.0% decline in the fourth quarter (revised down from -0.6%). This was well below market expectations of a 1.5% gain (Bloomberg median).

Combined with a 4.7% increase in GDP inflation, this drove nominal GDP (the broadest measure of the tax base) up 4.6% in the first quarter. The level of nominal GDP was $7 billion lower than projected in the 2026 Spring Economic Update.

• It is disappointing to see that real GDP did not grow in the first quarter.
• The Canadian economy faces continued pressure from tariffs and trade uncertainty.
• The Middle East conflict has now pushed energy prices higher and increased market volatility, weighing on the global outlook.
• That said, the Canadian economy remains resilient with ongoing growth household spending and business investment in today’s report.
• The IMF expects Canada to record the second strongest growth in the G7 this year and next year.
• The Spring Economic Update 2026 continues to advance the government’s plan to build Canada’s economy to be the strongest in the G7 and deliver better-paying jobs.

N/A

• Bottom Line: Real GDP declined marginally (-0.1%) to start the year, reflecting drags from weaker government spending, residential investment and non-residential construction. This was below the forecasts in both Budget 2025 (+1.5%) and SEU 2026 (+1.4%), as well as the Bank of Canada’s most recent April MPR (1.5%). Despite the weaker than expected growth, some of the details were more positive, including a small gain in private domestic demand due to the resilience of household spending and business investment.
• GDP Per Capita: Real GDP per capita grew 0.9% in the first quarter, as real GDP remain relatively unchanged and population continues to decline.
• G7 Growth Comparison: Canada ranked last among G7 economies on both a quarterly and year-over-year basis in the first quarter. For annual growth in 2025, Canada was second.
• Key Elements of the Quarterly Report: Household spending has remained resilient, with consumption growing 1.5% in the first quarter, driven by continued strength in services (+2.0%) while goods consumption rebounded from the decline last quarter (+0.7%). Business investment continued to expand after the fallback amid tariffs and trade uncertainty last year, growing 0.4% in the first quarter, supported by strength in machinery and equipment (+10.2%) and intellectual property products (+13.8%). Government spending declined 2.5% after two quarters of consecutive growth. Meanwhile, residential investment declined further (-7.9%) after the contraction in the fourth quarter, reflecting weaker housing activity. On its own, net trade subtracted 3.8 percentage points from growth, reflecting a significant gain in imports paired with a modest decline in exports. Shipments of gold were a key contributor behind the strength in inbound shipments. The corollary of this surge in imports was strong inventory accumulation, which offset the drag from net trade.
• Key Elements of the Monthly Report: Real GDP at basic prices declined 0.1% in March, slightly weaker than anticipated. For the first quarter, real GDP at basic prices grew 0.5% (annualized), as increases in service-producing industries more than offset declines in goods-producing sectors. The contraction in March was driven by lower activity in the mining, oil, and gas, construction and retail sectors. Based on preliminary estimates, real GDP is expected to post a strong increase in April (+0.4%) driven by increases in mining, oil and gas, manufacturing, and transportation and warehousing, but will be partially offset by agriculture, forestry, fishing and hunting.
• Outlook: We expect growth in real GDP to rebound to a pace in the range of 1.5 to 2% in the second quarter. Continued strength in household spending paired with expected rebounds in residential investment and exports should drive real GDP higher.
• Revisions: Revisions for the four quarters of 2025 were incorporated into the report. For 2025, real GDP is now 0.1% higher than it was prior to the release, while annual growth went from 1.7% to 1.9%.