Canada’s Economy Sees Modest Growth in January
Real gross domestic product (GDP) increased by 0.1 per cent in January, following a 0.2 per cent rise in December.
- Good-producing industries drove the increase for the month, expanding by 0.2 per cent for the second month in a row. Meanwhile, services-producing industries were essentially unchanged in January.
- Mining, quarrying, and oil and gas extraction saw the largest gains in the goods-producing industries, expanding by 1.2 per cent in January. Oil and gas extraction increased by 1.6 per cent, fully offsetting December’s 1.0 per cent decline, with gains recorded across all industries. Extraction excluding oil sands rose by 2.8 per cent, driven by higher crude petroleum production in Newfoundland and Labrador and Saskatchewan.
- Manufacturing, however, contracted in January after an increase in previous month. Durable-goods manufacturing industries, down for the third time in four months, decreased 2.0 per cent in January. Motor vehicles and parts manufacturing recorded its largest monthly contraction since September 2021, dropping by 10.8 per cent. The drop was mostly the result of retooling and maintenance related work at assembly plants, which significantly hurt production in January.
- The construction sector expanded by 1.1 per cent in January, up for a third consecutive month. Gains in the sector were widespread, with engineering construction activities up 1.1 per cent, its second monthly gain in a row. In addition, residential building construction recorded its third consecutive monthly growth, up 0.8 per cent in January.
- Transportation and warehousing decreased by 0.7 per cent in January, as extreme weather conditions weighed on the sector. Urban transit systems, in particular, saw a decline of 2.6 per cent in January.
- Finance and insurance grew by 0.5 per cent in January, marking its largest increase since September of last year. This was driven by higher-than-usual trading activity in both equity and fixed-income markets, with record foreign investment in Canadian bonds driving the gains in activity for the month.
Key insights
With the release of today’s GDP estimates, the economy appears to be entering 2026 with limited momentum. Real GDP showed slight growth of 0.1 per cent in January, following a contraction in the final quarter of 2025 that was driven by declining business inventories and weaker business investment. However, labour market conditions also continue to soften. Canada lost approximately 109,000 jobs over the first two months of the year, and February’s decline (-84,000) was particularly concerning as it was concentrated in full-time and private-sector employment. Looking ahead, the remainder of the year is likely to show sluggish growth with a declining population and ongoing uncertainty regarding tariffs and the conflict in the Middle East adding inflationary pressures.
International developments are expected to play a significant role in shaping economic conditions this year. The ongoing war in Iran has pushed oil prices significantly higher, adding to inflationary pressures at home and abroad, but boosting energy revenues in oil-producing provinces. The Prime Minister has also spent considerable time abroad pursuing trade diversification, including renewed engagement with China and negotiations with India, where a Comprehensive Economic Partnership Agreement is being targeted by year-end. At the same time, Canada is preparing for critical trade negotiations with the United States this year. Alongside these developments, continued global supply-chain restructuring and trade fragmentation will remain a headwind for Canadian businesses, underscoring how external forces will be just as important as domestic conditions in determining the economy’s performance in 2026.
To learn more about Canada’s economic outlooks for the long-term or the next five year’s, please visit Signal 49’s Canadian Outlook.
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