Canadian economy is on firmer footing than expected: RBC

In a March 31 report, RBC economist Abbey Xu said the Canadian economy started 2026 on firmer footing than expected, with real GDP rising 0.1% in January after a 0.2% gain in December.

Xu said the increase was modest but still came in above both Statistics Canada’s advance estimate and RBC’s own expectation for flat growth. She said the upside came mainly from goods-producing industries, while services output was essentially flat.

Weakness in January was concentrated in manufacturing, wholesale trade and housing-related sectors. Xu said manufacturing was held back by shutdowns at several Ontario auto plants tied to longer-than-usual model changeovers. Transportation and warehousing also softened after winter storms late in the month, while housing-related activity remained subdued alongside weaker home resales.

Those drags were partly offset by stronger performance in energy, construction and mining. Oil and gas extraction rose 1.6%, mining excluding oil and gas increased 0.4%, and construction advanced 1.1% for a third straight monthly gain, helped by residential renovations, multi-unit housing and continued strength in institutional and commercial building.

Within services, Xu said retail volumes rose 0.8% in January, pointing to continued resilience in household spending, while finance and insurance output increased 0.5%.

Looking ahead, Xu said Statistics Canada’s advance estimate for February points to another 0.2% increase in GDP, suggesting temporary drags are beginning to fade. She noted that manufacturing sales rebounded, helped by transportation equipment and food production, while retail and wholesale indicators also suggest positive momentum.

On a quarterly basis, Xu said the economy is tracking between RBC’s forecast for 1.3% annualized first-quarter growth and the Bank of Canada’s 1.8% projection. With population growth slowing, she said per-capita gains should continue. Xu added that RBC expects the Bank of Canada to keep rates on hold while policymakers assess the inflation effects of higher oil prices linked to the conflict in the Middle East.

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