GDP rose by 0.1 per cent in January on a monthly basis after a 0.2 per cent gain in December, Statistics Canada said, pointing to a fragile start to the year.

An advance estimate, which is usually prone to change, showed the economy might expand by 0.2 per cent in February.

Analysts polled by Reuters had forecast no growth in January.

Canada’s economy has struggled in the wake of tariffs imposed by President Donald Trump on steel, autos, aluminum, lumber, copper and other products. The tariffs have dented Canadian manufacturing output.

CUSMA review looms

While exemptions under a free trade deal between the U.S., Mexico and Canada have protected other sectors, growth has been largely muted, with the Canadian economy contracting in the fourth quarter. An upcoming review of the Canada-U.S.-Mexico Agreement is considered a major uncertainty looming over the economy.

Goods-producing industries, which account for a quarter of GDP, grew by 0.2 per cent in January, matching the gain of the previous month.

Mining, quarrying, construction and oil and gas extraction were the biggest growth drivers, helping to offset a 1.4 per cent drop in manufacturing output in January, StatsCan said.

The construction sector expanded for the third month in a row in January. The drop in manufacturing, the second-biggest contributor to monthly GDP, wiped out all the growth seen in December.

Service industries such as real estate, finance and healthcare are the biggest contributors to the Canadian economy, but growth in this category stalled in January, the statistical agency said.

Activity in the wholesale trade, transportation and real estate sectors shrank in January, offsetting growth in some major economic contributors such as retail, educational services and finance and insurance.

Overall, nine of the 20 industrial sectors recorded growth in January, StatsCan said.

Growth, inflation worries

Economists have said growth could take a bigger hit in the coming months as high crude oil prices resulting from the Iran war curtail consumer spending and push up inflation.

The Bank of Canada also could be forced to raise interest rates.

“The global energy price shock from the U.S.-Iran conflict is unlikely to derail Canada’s economy, but it compounds existing headwinds from U.S. tariffs, trade policy uncertainty and a shrinking population,” Michael Davenport, a senior economist at Oxford Economics, wrote in a note.

“Developments in the Middle East and the outcome of the mid-year USMCA (CUSMA) review remain highly uncertain, but will be pivotal to Canada’s economic prospects this year,” he said.

Money markets expect no change in interest rates at the Bank of Canada’s next meeting in April, but are pricing in one increase of 25 basis points in the second half of the year.

The Canadian dollar was down 0.07 per cent at C$1.3932 to the U.S. dollar, or 71.78 U.S. cents. Yields on two-year Canadian government bonds were down 4.7 basis points at 2.668 per cent.

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The farm lender maintained its prediction that GDP growth would slow to around one per cent.

The effective blockade of the Strait of Hormuz, which has restricted the flow of oil and gas from the region, has pushed commodity prices to multi-year highs, FCC economist Krishen Rangasamy wrote in a March 18 report.

Pros and cons

The jump in prices could spell opportunity for Canada, Rangasamy said.

WHY IT MATTERS: Higher fuel and fertilizer prices for farmers today could be followed by higher borrowing costs in the future if core inflation persists.

“Given its high historical correlation with commodity prices, nominal GDP (which matters for government revenues) is likely to also perk up.”

If commodity prices stay high, the federal government and governments in resource-rich provinces such as Alberta or Newfoundland and Labrador could see higher revenues. That doesn’t mean governments will spend more, Rangasamy said, but there’s potential for a spending-related GDP boost.

However, fertilizer prices are among those surging due to the conflict which is weighing on the ag sector. Higher prices for fuel can also push up inflation and erode consumers’ buying power.

Trade war damages

Last year, Canada’s economy saw the worst performance since the 2020 pandemic recession — growing just 1.7 per cent, Rangasamy wrote. Export volumes fell on an annual basis for the first time in five years.

Government and consumption spending offset weaknesses in housing and business investment. However, based on a slumping household savings rate, consumers also dipped into savings to maintain lifestyles. This means Canadians have little cushion to absorb future shocks.

“With no end in sight to America’s trade war … look for trade and business investment to act as a drag on Canada’s economy again in 2026,” Rangasamy said.

Government and consumption spending may not provide as much of an offset this time. Rangasamy noted the government has telegraphed caution related to public spending. While ambitious public projects are in the works, that spending isn’t expected this year.

Interest rates and the loonie

If commodity prices stay high long enough, businesses may be forced to raise prices which could lead workers to demand higher wages.

“That could potentially trigger a wage-price spiral,” said Rangasamy.

The Bank of Canada could pre-emptively raise interest rates to prevent core inflation from taking off. However, he predicted the bank would stay in “pause mode” for several months.

FCC predicted the Canadian dollar would trade in the 72- to 74-U.S. cent range for most of the year, but acknowledged currency volatility could temporarily take it outside that range.

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Sales were down in three of the nine subsectors with the building materials category and furniture, electronics and appliances retailers category also reporting a drop in sales. Sales at fuel pumps helped offset some of the fall, StatsCan said.

In volume terms, retail sales were unchanged in December.

WHY IT MATTERS: Retail sales, which include domestic sales of cars, furniture, food and gasoline, are considered an early indicator of gross domestic product growth and contribute around 40 per cent to total consumer spending.

Core retail sales, which exclude gasoline stations and fuel vendors and the motor vehicle and parts dealers, were down 0.3 per cent in December.

The motor vehicles and parts dealers’ category, which accounts for over a fourth of total retail sales, fell by 1.6 per cent to $18.71 billion.

The second biggest contributor to retail sales is the food and beverage retailer category. Sales were unchanged in December in this subsector.

Building materials dropped by four per cent and the furniture and appliances category registered a 1.7 per cent month-on-month drop.

In January, sales were likely up 1.5 per cent but this number is likely to be updated next month, the agency said in a flash estimate.

— Reporting by Promit Mukherjee and Dale Smith

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In October, sales were down in four of the nine subsectors, representing 41.6 per cent of retail sales. In volume terms, retail sales decreased 0.6 per cent in October.

Retail sales, which include domestic sales of cars, furniture, food and gasoline, are considered an early indicator of gross domestic product growth and contribute around 40 per cent to total consumer spending.

Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, were down 0.5 per cent in October.

The largest decrease to core retail sales came from food and beverage retailers, with beer, wine and liquor retailers contributing the most to the decline.

Sales were also down in the clothing and clothing accessories sector and at health and personal care retailers in October, StatsCan said.

Motor vehicle and parts dealers’ sales were up 0.6 per cent, recording the largest increase in retail sales in October. This was mainly led by sales of new cars.

Sales were likely up 1.2 per cent in November, the agency said in a flash estimate.

— Reporting by Promit Mukherjee and Dale Smith

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Retail sales – closely watched by economists as they give an indication of GDP trends – had held up fairly strongly in the last two months, as concerns around the timing and magnitude of tariffs threatened by U.S. President Donald Trump brought forward purchases.

Why it matters: Retail sales are closely watched by economist as they give indications of GDP trends.

But sales weakened as the impact of tariffs started hitting consumers and the general outlook around the economy paled.

By contrast, an early or “flash” estimate showed retail sales likely grew 1.6 per cent in June, though this figure is prone to correction, statistics agency StatsCan said.

Analysts polled by Reuters had expected a drop during May, similar to what was reported, and barring autos and auto parts, which contribute almost 30 per cent to overall sales, they had predicted a drop of 0.3 per cent.

Sales excluding autos in May were down 0.2 per cent, StatsCan added.

The biggest drop was posted in the motor vehicles and parts dealers category, where sales contracted by 3.6 per cent, after two consecutive months of increases.

The drop was led by 4.6 per cent lower sales at new car dealers, which fell for the first time since February, it said, adding that in volume terms, retail sales decreased 1.4 per cent in May.

Declines in food and beverage sales

Another declining sector was food and beverages. This category, which contributes up to 18 per cent of total retail sales, saw purchases shrinking by 1.2 per cent, led by lower transactions at convenience stores and a decline in sales of beer, wine and liquor.

Economists noted the expected rise in sales in June which could indicate that GDP might improve in the second half of the year, but said trade tensions are likely to keep consumer spending under check.

“Unless a trade deal is reached to significantly reduce U.S.-Canada tariffs … we expect households will continue to tighten their purse strings as job losses and higher prices from tariffs squeeze disposable income,” said Michael Davenport, senior economist at Oxford Economics.

The Bank of Canada will announce its rate decision next week and is likely to keep borrowing costs on hold, but most economists expect the central bank will need to start easing rates again to support the economy.

The largest increase in retail sales in May came in building materials, and garden equipment and supplies, which posted an increase of 1.9 per cent following a decline of 0.3 per cent in April.

A survey of retailers by StatsCan on the impact of U.S. tariffs and Canada’s countermeasures showed that 32 per cent of retail businesses were impacted by the trade tensions in May, compared with 36 per cent in April.

The most common impacts in May were price increases, changes in demand for products, and increased expenses for raw materials, shipping or labor, it said, citing the survey.

— Reporting by Promit Mukherjee and Dale Smith

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The consumer price index was at 1.7 per cent in the prior month.

Statistics Canada said on a monthly basis the CPI increased 0.1 per cent, matching analysts’ forecasts.

CPI has been under two per cent, or the mid-point of the Bank of Canada’s inflation target range, for three consecutive months.

This is the last major economic indicator to be released before the Bank of Canada’s rates decision later this month.

The slight rise in prices across many segments, along with a strong jobs number last week, is likely to take away any incentive to cut interest rates, economists said.

Money markets were betting on the odds for a rate cut at just over 10 per cent after the data was released. The central bank will announce its monetary policy decision on July 30.

“It’s just the latest piece of evidence to keep the Bank of Canada on hold after 83,000 jobs (added in June) and no clarity on how fiscal policy and trade policy will evolve,” said Derek Holt, vice president of Capital Market Economics at ScotiabankC.

The Canadian dollar was trading stronger by 0.19 per cent to 1.3677 against the U.S. dollar, or 73.12 U.S. cents. Yields on the government’s two-year bonds were down 0.6 basis points to 2.761 per cent.

The rise in prices in June was primarily led by a 2.7 per cent jump in durable goods such as automobiles and furniture, following a 2 per cent rise in May on a year-on-year basis, StatCan said.

Passenger vehicle prices rose 4.1 per cent on an annual basis in June following a 3.2 per cent increase in May, the agency added.

Inflation was further boosted by a rise in the price of clothing and footwear, which accelerated 2 per cent annually in June after a modest 0.5 per cent rise in May, due in part to uncertainty surrounding international trade, Statistics Canada said.

U.S. consumer prices also picked up in June, likely marking the start of a long-anticipated tariff-induced increase in inflation.

Canadian gasoline prices are expected to be depressed for the next 10 months after the government scrapped the consumer carbon levy on gasoline in April.

On a year-over-year basis gasoline prices fell by 13.4 per cent in June from 15.5 per cent in May.

Economists and the central bank have focused on the core measures of inflation, which excludes the impact of tax measures, to gauge price trends.

One of the core measures of inflation, the CPI-median, or the centermost component of the CPI basket, edged up to 3.1 per cent in June from 3.0 per cent in the prior month.

The other core measure CPI-trim, which excludes the most extreme price changes, was unchanged in June at 3.0 per cent from May, StatsCan said.

“The fact that core inflation is pretty much locked in at around three per cent is a bit of an issue for Bank of Canada rate cut prospects,” said Doug Porter, chief economist at BMO Capital Markets.

Shelter prices, which account for up to 30 per cent of the CPI basket weight and comprises mortgage and rent, rose by 2.9 per cent, the first drop below 3.0 per cent in more than four years.

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That analysis didn’t rattle investors or confidence in the dollar. From Jan. 9-13, the U.S. dollar jumped in value when compared to a basket of global currencies.

The might of the dollar over the last three and a half months largely explains why the loonie sank below US70 cents in the first weeks of 2025.

“There is some weakness to the Canadian dollar, yes. But a lot of the impact that we see in the Canadian-U.S. exchange rate is due to U.S. dollar strength,” said Graeme Crosbie, senior economist with Farm Credit Canada.

Crosbie shared his thoughts on the dollar, the loonie and other economic measuring sticks in 2025 while speaking at Manitoba Ag Days in Brandon Jan. 21.

During his speech, Crosbie mentioned the Bank of America comments about the U.S. dollar.

“The U.S. dollar appears overvalued by 18.5 per cent, the most in the last 30 years except when it was overvalued by 19 per cent during the energy shocks from the war in Ukraine in 2022,” said Athanasios Vamvakidis of Bank of America.

From Oct. 1 to early January, the U.S. Dollar Index climbed by a staggering nine per cent. The index compares the U.S. dollar to the exchange rates of six currencies, including the euro, the pound and the loonie.

The dollar may be in the stratosphere, but few experts are predicting that it will weaken anytime soon. That includes economists with FCC.

“We do see that strength in the U.S. dollar, continuing,” Crosbie said.

“It’s hard to make a case for the loonie breaking that 70 cent mark for a long time, in the year ahead.”

It isn’t much consolation for Canadians, but the loonie has held its own against most other currencies.

Crosbie showed a chart at Manitoba Ag Days comparing the loonie to the euro, the Mexican peso and the yen.

Over the last two years, the Canadian dollar is down two percent to the euro and it’s unchanged against the peso.

“We’ve appreciated 14 per cent against the yen,” Crosbie said.

Some forecasts suggest the loonie will gain ground against the U.S. dollar in the second half of 2025.

That’s possible, but some of U.S. president Donald Trump’s actions could be inflationary. Tariffs normally cause inflation, and the U.S. Federal Reserve may pause future interest rate cuts, to keep a lid on inflation.

Should that happen, the gap between prime rates in Canada and the U.S. could widen, putting more pressure on the loonie.

Check out all our coverage of Manitoba Ag Days 2025 here.

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Economy: Consumption slowdown, inflation downtrend and interest rate implications

A second consecutive year of weak growth is in the cards as the impacts of earlier interest rate increases are felt more acutely throughout the Canadian economy in 2024. Consumption spending, which accounts for nearly 60 per cent of GDP, should see a marked deceleration as households struggle under the weight of record high debt servicing (Figure 1), elevated shelter costs and a more challenging labour market.

The economic slowdown will reinforce the downtrend in inflation, causing long bond yields, and ultimately longer-term rates on fixed rate loans, to drop further in 2024. In contrast, short yields should be anchored by the Bank of Canada’s decision to keep its overnight rate unchanged for another few months. But once the central bank is convinced that the inflation downtrend is sustainable, which we’re expecting to happen around mid-year, look for it to start cutting its overnight rate to boost a flagging economy.

Crops: Canola crushing set a first quarter record

Canada’s canola crushers set a record in the first quarter of the 2023/24 marketing year as new capacity came online (Figure 2). Canadian canola crush expansion was initially slated to add 4.5 million metric tonnes in 2024 however, rising construction costs, higher interest rates, and tight canola supplies the last several years have led to delays in projects. Increased canola crush may help swing acres to the crop, although the soybean to corn futures ratio will still be the global bellwether to understand trends in seeded acres. U.S. producers will have incentives to plant more soybeans at the expense of corn acres if the ratio stays at today’s level.

Cattle: North American cattle herd continues to shrink

The North American beef herd is going to be smaller on January 1, 2024, compared to a year earlier. Even strong prices have not been able to stem herd reductions as producers have dealt with droughts in 2 out of the last 3 summers, with heifers and cows accounting for 51 per cent of slaughter in 2023 (Figure 3). Provided 2024 provides bountiful rain for hay and pasture, rebuilding the herd will be a multiyear process as when looking back through time the high prices during 2015 and 2016 only resulted in herds staying flat.

Hogs: Canadian slaughter capacity in 2024

The USDA is expecting Canadian pork production to decline a further -1.2 per cent in 2024 as the world faces a current oversupply of pork. Producers around the world continue to be pressured on margins leading to herd reductions, including the world’s largest producer, China. Canadian producers are going to face tight margins until at least the summer although there has been increased demand for pork domestically as consumers are shifting consumption patterns to lower priced protein options.

Dairy: Lower feed costs to provide boost to profitability

With input costs stabilizing, dairy margins in 2024 should improve compared to the last few years with current estimates comparable to margins in 2019. Feed availability and pricing – which have been extremely volatile in the last three years – will be the ultimate determinant of profitability. A bountiful U.S. crop in 2023 sent corn futures tumbling to a three-year low. With corn being the market-maker in other feed grain markets, this put downward pressure on feed wheat and feed barley costs as well, even in western Canada where drought limited production. A +/- 10 per cent change in purchased feed costs can swing overall profitability by +/- 40 per cent. To get a sense where the price of corn is headed in 2024, producers will want to keep an eye on corn production estimates from South America and on prospective plantings of corn in the US this upcoming growing season.

Crop inputs: Fertilizer affordability to improve

Declining crop prices and elevated farm input prices notably fertilizer have been on the minds of Canadian farmers. Our fertilizer affordability index is a top chart to monitor. The ratio between fertilizer and crop prices is an indication for fertilizer affordability, calculated by the price of fertilizer divided by the crop price. It highlights the relationship between fertilizer prices and crop prices, or simply inputs and outputs.

Our fertilizer affordability index based upon the major crop rotations has improved for both canola-wheat and corn-soybeans due to weaker global fertilizer prices relative to crop prices. The lower the ratio, the more affordable fertilizer becomes relative to the crop. Overall, the fertilizer affordability trends indicate optimistic 2024-25 crop profitability. Nitrogen has shown improved affordability across most major crop commodities. Spring wheat and canola prices have held up the most relative to nitrogen prices contrasted to corn. The ratio of commodity prices relative to the price of phosphate is also expected to improve despite more upside potential for global phosphate prices in 2024. We will continue to monitor fertilizer affordability as spring planting approaches.

Farm equipment: High borrowing costs expected to weigh on sales

The farm equipment industry has faced supply chain issues for several years which impacted delivery of equipment from manufacturers. Reduced deliveries coupled with strong demand for farm equipment reduced inventory levels of both new and used farm equipment in 2022 and into 2023.

Supply chain issues are largely behind us and deliveries from manufacturers continue to arrive. As such, inventory levels are expected to increase in 2024. Rising inventory levels of new equipment will spill over to the used equipment market.

Inflationary pressures on new equipment prices along with higher borrowing costs are expected to slow farm equipment sales. Elevated interest rates have resulted in more caution as producers delay purchase decisions until interest rates stabilize or fall. Operations place a large focus on the cost per acre of equipment in relation to overall total costs on the farm.

–Written by Farm Credit Canada (FCC) senior economists Leigh Anderson, Graeme Crosbie and Justin Shepherd.

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Farm cash receipts for Canadian farmers totalled $72.5 million over the first three quarters of the year, up 7.9 per cent from the same period in 2022.

Why it matters: Farm cash receipts are used to estimate Canada’s gross domestic product.

Crop receipts were up $4.5 billion to $41.4 billion despite the drop in prices because farmers had more product to sell.

They have been marketing the 2022 crop for most of this year, which was vastly improved over the drought-ravaged 2021 crop.

There was a 40 per cent increase in canola sales volumes, a 31 per cent bump in non-durum wheat and a 73 per cent hike in durum marketing due to the return to normal production levels in 2022.

In the meantime, canola prices fell 15.5 per cent, wheat dropped 8.9 per cent and durum values plunged 17.9 per cent during the first three quarters of the year.

J.P. Gervais, chief economist with Farm Credit Canada, said Statistics Canada’s numbers need to be interpreted carefully.

The report only deals with revenues and ignores expenses, so it can paint a misleading picture of the financial health of farmers.

“(It) hides a little bit of the current challenges with margins,” he said.

Growers are starting to feel the pinch of inflation, high interest rates and rising labour costs.

“It is a lot more nuanced, and I would even say fragile than some of the headline numbers would suggest,” said Gervais.

Farmers in Saskatchewan led the way with a 15.9 per cent increase in receipts, generating $16.5 billion in revenue during the first three quarters of the year.

But that is primarily because it was the province that was hardest hit by the 2021 drought, which put pressure on 2022 crop receipts despite sky-high prices that year.

Ontario farmers generated $15.6 billion in receipts, a 3.4 per cent increase over last year. Gervais said the increase was more muted than in the Prairies because growers in the east did not suffer drought in 2021.

Corn and soybean receipts increased by a modest 4.5 and 4.2 per cent compared to wheat and canola hikes of 19.5 and 18.4 per cent.

Alberta led all the provinces with $17.6 billion in receipts, a seven per cent increase over the same period a year ago.

“We had some really good pricing in the cattle industry,” said Gervais.

Nationwide cattle receipts amounted to $10.46 billion for the first three quarters, a whopping 23 per cent increase over the same period a year ago.

Cattle supplies are tight and there is no herd expansion in sight on either side of the Canada/U.S. border.

That should sustain the elevated prices going forward.

However, consumers are feeling the pinch of inflation, which has caused a leveling out of prices, he said.

Manitoba generated $7.5 billion in receipts, an 8.4 per cent increase over last year as strong crop receipts offset slumping revenues in the hog sector, which were down 11 per cent nationally.

The hog industry is struggling to balance supply with declining demand in both domestic and export markets.

“China is not what it used to be,” said Gervais.

The anticipated reduction in U.S. hog supply has not materialized and that is also hurting prices.

“Whatever decline in the U.S. herd that has been happening has been offset by some production gains,” he said.

Gervais is curious what the fourth quarter holds. He expects crop marketing volumes will be down because farmers will be selling the 2023 crop, which was smaller than 2022.

However, he thinks prices could be on the rise because he believes markets have been too aggressive in pushing them down.

The historically high short positions in futures markets will eventually have to cover themselves.

“I think there is a little bit more upside than downside frankly,” he said.

– Sean Pratt is a reporter with The Western Producer.

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A search of the 141-page document for the term “agriculture” revealed only a handful of results.

One of the few sections of interest for farmers referred to the use of waste biomass to generate electricity and heat.

The economic statement says that “during the course of production, industries like forestry and agriculture generate organic byproducts, such as leftover wood chips and crop residues, which have the potential to be used to generate affordable energy while also reducing emissions.”

Underused housing tax

In the statement the federal government has proposed changes to the Underused Housing Tax (UHT) that would remove the onerous filing requirements for farm corporations and farm partnerships that own more than one residence. Non-filing penalties will also be reduced.

Ontario Federation of Agriculture (OFA) president Drew Spoelstra said in a release, “Although most farmers would have been exempt from paying any actual tax, the filing of a UHT return is administratively burdensome,” he said.

The proposed changes still need to be introduced and passed through legislation in order to come into effect. If legislation is passed, farm corporations and partnerships that are deemed to be Canadian owned will also be exempt from filing a UHT return starting with the 2023 tax year. The penalties for failure to file a UHT return would also be reduced to $1,000 for an individual and $2,000 for a corporation form their current levels of $5,000 and $10,000 respectively, according to the OFA statement.

Tax credits expanded

The economic statement proposed greater eligibility for the 30 per cent Clean Technology investment tax credit, which could play into the future of the biofuel market.

“This expansion … would be available to businesses investing in eligible property that is acquired and becomes available for use on or after the date of the 2023 Fall Economic Statement,” the document read.

Another tax credit expansion would see wider eligibility for the 15 per cent Clean Electricity investment tax credit, to include systems that produce electricity or a mix of electricity and heat from waste biomass. That tax break would be available as of the date of Budget 2024 for projects that did not begin construction before March 28, 2023.

– Jeff Melchior is a reporter with the Alberta Farmer Express, with files from Farmtario staff

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