Data Pulse: Canada’s Economy Is Barely Growing. What Does That Mean for Mortgage Rates?

• This morning, Canada’s GDP rose just 0.1% in January, beating the consensus forecast of zero growth but pointing to a fragile economy heading into the Iran oil shock.
• Manufacturing was the weak spot, falling 1.4% as motor vehicle production collapsed 23.5%, the sector’s worst showing since September 2021.
• The economy contracted 0.6% annualized in Q4 2025, and first-quarter growth is tracking around 1.5%, well below the Bank of Canada’s forecast.
• Weak growth strengthens the case for a rate cut on April 29, but the Bank cannot move until the inflation picture from the oil shock becomes clearer.

This morning, Statistics Canada reported that the economy grew 0.1 percent in January. That was slightly better than the consensus forecast of zero growth, but it paints a picture of an economy barely moving forward. December’s revised gain of 0.2 percent already showed momentum fading.

This is pre-war data. January’s numbers capture the economy before the U.S.–Israeli campaign against Iran disrupted energy markets in late February. As a result, the real question is not whether the economy was limping in January, but whether it can absorb the oil shock that followed.

An advance estimate from Statistics Canada suggests February GDP may have risen 0.2 percent. If that holds and March comes in flat, first-quarter growth would track around 1.5 percent annualized. That is a step up from the 0.6 percent contraction in Q4 2025, but still well below the Bank of Canada’s January forecast.

What the Numbers Show
Goods-producing industries carried the weight. That part of the economy, which makes up roughly one quarter of GDP, grew 0.2 percent for the second month in a row. Mining, quarrying, oil and gas extraction, and construction were the biggest contributors.

Construction expanded for the third consecutive month. However, manufacturing dragged the gains back. The sector fell 1.4 percent, erasing all of December’s progress.

The damage was concentrated in auto production. Motor vehicle and parts manufacturing posted its worst contraction since September 2021, falling 10.8 percent as seasonal winter shutdowns at auto plants extended into January. Motor vehicle production itself dropped 23.5 percent, holding back both output and exports.

Those auto stoppages also drove a 1.2 percent decline in wholesale trade. Beyond the auto disruption, U.S. tariffs on steel, aluminum, lumber, and copper products continue to weigh on Canadian manufacturing broadly.

Services, the largest part of the economy, stalled. Wholesale trade, transportation, and real estate all shrank, while retail, finance, and educational services posted gains that were not enough to move the needle. In total, only nine of 20 industrial sectors recorded growth in January.

What This Means for Canadian Mortgage Rates
Weak GDP is normally the clearest signal that rate cuts are coming. The Bank of Canada’s overnight rate sits at 2.25 percent, and it has held there for three consecutive meetings. Governor Macklem has already described the growth outlook as tilted to the downside.

This GDP report reinforces that view. An economy that grew just 0.1 percent in January, coming off a contraction in Q4, is not one that needs higher rates. In fact, by any traditional reading, it needs lower ones.

But the Bank remains stuck. The Iran war has pushed Brent crude well past US$100, and the March inflation print, due April 20, will almost certainly reflect that surge. Until the Bank can see whether the energy shock is temporary or broadening into core prices, it cannot cut and variable rates stay where they are.

Bottom Line
Today’s GDP data tells us the economy was fragile before the war even started. Manufacturing is being hollowed out by tariffs, services have stalled, and only the resource sector is pulling its weight. That is not a foundation that absorbs an oil shock well.

For mortgage holders, the math is straightforward but frustrating. Growth is weak enough to justify rate cuts, yet inflation is too uncertain to allow them. The next decision point is April 29, when the Bank releases its Monetary Policy Report.

Between now and then, two data points will shape the outcome. The March CPI print on April 20 will show how much the oil shock has fed into prices. The April 8 labour force survey will reveal whether the economy is still creating jobs or starting to shed them.

If inflation stays contained and the labour market softens further, an April cut is on the table. If energy costs have pushed core prices higher, the Bank will hold again. Either way, the GDP data released this week makes one thing clear: the economy is not strong enough to carry higher rates for much longer.