The economy expanded by 0.5 per cent in the first quarter of 2025, maintaining its momentum from the end of last year, as strong export activity and rising business inventories helped counter softer household spending and a cooling housing market.
The growth was driven largely by increased exports of passenger vehicles and industrial machinery, which surged 16.7 and 12.0 per cent, respectively. Imports also rose, climbing 1.1 per cent, led by machinery and vehicle demand. However, a seven per cent drop in cross-border travel suggested many Canadians pulled back on spending abroad.
Business inventories grew during the quarter after being drawn down in late 2024. Retailers also added to their stock, while manufacturers eased the pace of inventory reductions.
Despite the broader economic expansion, signs of strain appeared on the domestic front. Household spending slowed sharply to 0.3 per cent, following a 1.2 per cent increase in the previous quarter. A pullback in vehicle purchases nearly offset growth in rental and financial service expenditures. On a per capita basis, household consumption edged up just 0.1 per cent. At the same time, savings declined, with the household saving rate falling to 5.7 per cent, the lowest in a year.
Housing investment contracted 2.8 per cent, led by a steep 18.6 per cent drop in resale market activity. New construction, however, rose 1.7 per cent, driven by apartment developments in Ontario. Renovation spending also posted a modest 0.5 per cent gain.
Non-residential construction fell 1.6 per cent, with engineering projects seeing the sharpest pullbacks. Meanwhile, spending on factories and industrial buildings grew by 1.1 per cent. Investment in machinery and equipment rose by 5.3 per cent, marking a strong quarter across all major categories, with transportation equipment leading the way.
Employee compensation rose 0.8 per cent, supported by wage increases in health care, social services and construction. The largest gains were recorded in Saskatchewan, Alberta and British Columbia. Wages declined only in the Northwest Territories and Nunavut. Despite this wage growth, overall income gains failed to keep pace with rising consumption, contributing to the decline in household savings.
Corporate earnings rose at a slower pace than in the previous quarter. Profit growth was concentrated in oil and gas extraction, petroleum refining and automotive manufacturing. However, softer results in non-financial service industries tempered the overall advance in business income.
Price indicators also pointed to moderate inflationary pressure. The GDP price index rose by 0.6 per cent, reflecting higher energy export prices and rising consumer costs. However, with import prices outpacing export gains, Canada’s terms of trade declined during the quarter.