The Bank of Canada held its overnight policy rate a 2.75 per cent this morning.  In the statement accompanying the decision, the Bank noted US trade policy continues to create uncertainty in the global economy and that uncertainty is likely to slow economic growth in coming quarters. On inflation, the Bank cited stronger than expected inflation in April and survey data showing household inflation expectations rising due to tariffs as concerning trends in the evolution of inflationary pressures.

While we know with a high degree of certainty that trade wars are stagflationary – they slow growth, and raise prices - what we don't know yet is how severe a trade war may be or even if it will end up materializing at all. The immediate impact of that uncertainty is paralysis in decision making, both at the macro level of businesses looking to hire and invest and at the micro level of households thinking of buying or selling a home. Indeed, we are already seeing the impact of uncertainty in a slower labour market and slumping home sales.  Unfortunately, we are also seeing a pick-up in underlying inflation, with core measures of inflation registering above 3% on a 3-month annualized basis in recent months.  That combination of slowing growth and rising inflation puts the Bank in a very difficult position. That said, given rising unemployment and risk of a wider downturn, we believe that the Bank of Canada will, lower its policy rate at least one more time this year, likely at its next meeting July. 

For more information, please contact: Gino Pezzani.

To view the full interactive BCREA Commercial Leading Indicator, click here.
To view the full Commercial Leading Indicator PDF, click here.

The BCREA Commercial Leading Indicator (CLI) rose 2 points to 152.6 in the first quarter of 2025, while the six-month moving average rose to 151.1. Compared to the same quarter in 2024, the index was up 3.3 per cent. 

First Quarter Highlights

• The economic activity index rose in Q1 by 0.5 points. Growth in this index was driven by increased inflation-adjusted retail trade (0.2 per cent) and wholesale trade (0.4 per cent), which offset a small decline in manufacturing sales.

• The overall employment component increased by 1.3 points in the first quarter. Broad-based growth across office employment (0.6 per cent) and manufacturing employment (0.7 per cent) suggests a healthy level of job creation across many sectors to begin the year.

• The financial component of the index increased in the first quarter by 0.1 points. Real Estate Investment Trust (REIT) prices rose by 0.6 per cent, slightly pushing the component up. Additionally, interest rate spreads saw modest decreases from the previous quarter, indicating slightly less perceived short-term risk in the economy (this data reflects pre-tariff conditions).

Canadian real GDP rose by 0.1 per cent in March, after declining by 0.2 per cent in February. Goods-producing sectors rose 0.2 per cent, while service-producing industries increased by 0.1 per cent. Sectoral growth was led by mining, quarrying, and oil and gas extraction (2.2 per cent), construction (0.5 per cent), and retail trade (0.8 per cent). Output for the offices of real-estate agents and brokers fell by 4.5 per cent month-over-month. Preliminary estimates suggest that real GDP by industry increased by 0.1 per cent in April.

Real GDP increased by 0.5 per cent in the first quarter of 2025, registering an annualized growth rate of 2.2 per cent. Growth in household spending slowed from the previous quarter to 0.3 per cent, leading to a 0.1 per cent uptick in per capita household expenditures. Growth was driven by increased trade, with exports of goods and services (1.6 per cent) outpacing imports (1.1 per cent). Investment into both residential and non-residential structures declined by 2.8 and 1.6 per cent in the first quarter, respectively. Meanwhile, investment in machinery and equipment increased by 5.3 per cent in the first quarter.  The household savings rate fell from 6.0 per cent to 5.7 per cent in the first quarter, as disposable income growth was outpaced by nominal household expenditures, while investment income declined. On a per capita basis, GDP rose 0.4 per cent in Q1 after increasing by 0.1 per cent in the previous quarter.

Tariff-avoidant behaviour from Canadian households, businesses, and our trading partners alike propelled Canada's GDP growth in the first quarter above the Bank of Canada's most recent projection. Growth in the first quarter was largely driven by rising exports, as US firms and households purchased goods ahead of tariff implementation. As central bankers continue to worry about the economic damage caused by volatile trade policy, this report could influence the Bank of Canada towards a hold during their next meeting to curb the inflationary risks of tariffs. Moving forward, the Bank of Canada will be closely watching second-quarter data for signs of a weakening economy and broader price pressures due to current tariffs and the uncertainty over future trade policy.

For more information regarding British Columbia's GDP growth, please visit our Nowcast for an estimate of economic activity throughout the province:

DRAFT: BCREA Nowcast for March and April Prelim by Economics - Infogram

https://mailchi.mp/bcrea/canadian-economic-growth-real-gdp-q1-2025

For more information, please contact: Gino Pezzani.