| Consensus | Consensus Range | Actual | Previous | Revised | |
| Quarter over Quarter | 0.0% | -0.2% | |||
| Year over Year | -0.1% | 0.7% | |||
| Annual Rate | 1.4% | 0.7% to 1.7% | -0.1% | -0.6% | -1.0% |
Highlights
The Canadian economy contracted at an annualized pace of 0.1 percent (minus 0.144 unrounded) in the first quarter of 2026 on the back of a 1.0 percent drop in the fourth quarter of 2025, a far weaker performance than expected. Forecasts in an Econoday survey had centered on a 1.4 percent growth consensus, with the most pessimistic up 0.7 percent.
GDP was flat from the previous quarter after declining 0.2 percent. GDP per capita, however, was up 0.2 percent as the population shrank for a second consecutive quarter.
The Bank of Canada had projected an annualized GDP growth of 1.5 percent both in the first and second quarters of 2026. It had also projected inflation to peak at 3 percent in April, when the CPI rose to 2.8 percent. Against this background, the central bank is unlikely to rush to hike rates to bring inflation down to the 2.0 percent target, especially since inflation excluding gasoline slowed in April.
In the first quarter, imports of goods and services were up 2.9 percent (12.0 percent annualized), with half of the increase driven by intermediate metal products and waste and scrap metal, driven by gold imports. By contrast, exports of goods and services edged down 0.1 percent over the quarter (down 0.5 percent annualized).
Household consumption growth slowed to 0.4 percent (1.5 percent annualized) from 0.7 percent, contributing 0.57 percentage points to the annualized GDP. By contrast, government spending retreated 0.2 percent (minus 1.0 percent annualized) from the previous quarter.
Overall final demand edged down 0.1 percent in the first quarter (down 0.4 annualized).
In a fifth consecutive decline, business capital investment was down 0.7 percent in the first quarter (minus 3.0 percent annualized), trimming annuakized GDP by 0.54 percentage points. Government capital investment declined 2.5 percent due to lower investment on weapon systems.
Investment in residential structure also decreased, by 2.0 percent over the quarter after declining 2.4 percent.
Business inventories accumulated in the first quarter, with manufacturing adding to inventories while retail and wholesale trade recorded drawdowns. Investment in inventories contributed 4.27 percentage points to GDP growth.
Market Consensus Before Announcement
The consensus looks for growth to pick up to 1.4 percent annual rate from 0.7 percent in Q4.
Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no quarterly flash estimate and the first report is typically not issued until around the end of the second month after the reference period. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of the GDP expenditure components.
Description
GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. Unlike the U.S., Canada produces only one estimate per quarter once full data are available for all components. Most production reports that lead to Canadian GDP are released before the official GDP number. Therefore, actual GDP figures usually confirm expectations. However, an unexpected release can move markets due to the significance of the figure.
GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.
Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.
Robust GDP growth signals a heightened level of economic activity and often a higher demand for the domestic currency. At the same time, economic expansion raises concerns about inflationary pressures which may prompt monetary authorities to increase interest rates. Thus positive GDP readings are generally bullish for the Canadian dollar, while negative readings are generally bearish.