National Bank of Canada (NBC) economists Matthieu Arseneau and Alexandra Ducharme say Canada’s real GDP started 2026 on a firmer footing, with January growth beating expectations and preliminary data pointing to a solid Q1 gain. They highlight strong GDP per capita growth but stress that labour market softness, policy uncertainty around USMCA, and higher energy costs could limit sustained momentum and keep the Bank of Canada cautious.

Solid Q1 growth but fragile backdrop

"The year 2026 is off to a strong start in terms of economic growth."

"As a result, even assuming the economy stagnated in March, the first quarter could have posted growth of 1.5% on an annualized basis."

"Given the current population decline, this would mean a 2.5 % increase in GDP per capita, the strongest since Q2 2022."

"This morning’s report is reassuring, but it doesn’t mean the Canadian economy is sailing smoothly and that the Bank of Canada needs to rein it in as the energy inflation shock looms on the horizon."

"Furthermore, other indicators—particularly those related to the labour market—are cause for concern and stand in contrast to GDP growth. They likely signal that the renewal of the USMCA, which is still pending this year, continues to dampen businesses’ enthusiasm for hiring and investment."

"Despite Canada’s status as a net oil exporter—a relative advantage—we remain skeptical about the economy’s overall ability to benefit from recent geopolitical developments."

"The inverted forward curve of oil prices does not suggest a significant rebound in fossil fuel investment."

"Gains from improved terms of trade are likely to be largely offset by rising energy costs for households."

"Having successfully brought inflation under control—something not all central banks have achieved—the Bank of Canada can afford to be patient before raising rates, especially since they overall do not appear to be particularly stimulative, as evidenced by weak housing activity, moderate credit growth, and the expected mortgage repayment shock in 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)