Canada’s economy showed modest growth to start the year, with output edging higher as strength in key sectors helped offset ongoing weakness elsewhere. The latest GDP data points to uneven but resilient economic activity.
BNN Bloomberg spoke with Jimmy Jean, chief economist and strategist at Desjardins, who says gains in oil and gas and retail supported growth, while manufacturing remains under pressure amid tariffs and regional divergence risks.
Key Takeaways
- Real GDP rose 0.1 per cent in January, marking a second straight monthly increase.
- Oil and gas output climbed 1.6 per cent, helping drive overall economic growth.
- Retail activity showed resilience despite a weakening labour market backdrop.
- Manufacturing and tariff-exposed sectors continue to face pressure.
- Risks of regional divergence are emerging as energy-producing provinces outperform.
Read the full transcript below:
ROGER: Well, Statistics Canada has just released the January Canadian GDP numbers. Real gross domestic product edged up by 0.1 per cent in January, marking a second consecutive monthly increase, driven by growth in goods-producing industries, along with oil and gas. For more reaction and in-depth analysis, we turn to Jimmy Jean, chief economist and strategist at Desjardins. Thanks, as always, for joining us.
JIMMY: Thanks for having me.
ROGER: Okay, I know the numbers literally just dropped, but up by 0.1 per cent — I think we were expecting it to be essentially unchanged?
JIMMY: Right. The consensus was looking for an increase. But I think for the month of February, the consensus was looking for something flat, and now it looks like we may have another increase in February. So those are good starting points for the first quarter and 2026 as a whole.
GREG: To that point, given so much has changed in the world since the January data came out, are people going to look through this number, or is this going to have any impact on the bond market?
JIMMY: I would suspect so, in the sense that the information contained here will still matter, knowing what’s ahead of us. What’s ahead of us in Canada is really different from what’s ahead of the U.S. or European countries, in that Canada is a net exporter. So we have a positive terms-of-trade shock that will boost the outlook, particularly in oil-producing provinces.
However, in provinces that are net consumers, this is going to have a similar impact on real disposable income and household purchasing power as you see elsewhere. That’s why the Bank of Canada is somewhat in a bind here. The next few data points will give us a better sense, but it may take a few months before we see meaningful traction in the oil sector, particularly on production. We may observe it over the course of a quarter or so.
ROGER: Yeah, looking at the numbers, oil and gas was up 1.6 per cent, offsetting December’s contraction. Does that bode well heading into the next couple of months?
JIMMY: I think it’s a sign that it’s one of the more resilient industries. But remember, this is one of the least targeted industries when it comes to U.S. tariffs, for obvious reasons. The same applies to oil-producing provinces — that’s where the effective tariff rate is the lowest. So you don’t have the same obstacles there as in other sectors.
Even looking at other sectors you might expect to struggle, like retail, they’re not performing too badly. So the economy does have some level of resilience. We saw that in the fourth quarter with domestic demand. Even though we had a contraction in the headline numbers, domestic demand rose 2.4 per cent, which is quite strong.
A lot of that was influenced by government spending, particularly defence. We saw those numbers impact the quarterly data, and it’s something we’re likely to continue to observe as those announcements continue.
GREG: You touched on tariffs, but there was a lot of concern last year about the threat to Ontario’s industrial base and auto manufacturing. Are we starting to see that in the data yet, or have we been able to avoid it so far?
JIMMY: Overall, Canada is still in a relatively good position compared to other countries, like China, when it comes to tariffs. It’s really sector-specific tariffs that have created pressure in targeted industries like wood products, steel and aluminum.
Once there was clarity that CUSMA was still applicable, and that nothing was changing for most exporters, confidence began to recover. Exports are still under pressure, but there’s growing interest in diversifying and finding alternative markets to build resilience.
That will take time — exports to non-U.S. countries are still only a fraction of total exports — but we’re seeing a shift that we haven’t seen before.
We also saw retail come in positive, with sales surprising to the upside. That’s encouraging, especially given a labour market that has been struggling since the start of the year. We’ll need more data to determine whether that was a temporary blip, but it offers a more constructive view of the domestic economy than earlier data suggested.
ROGER: With manufacturing compared to energy, are we in danger of becoming a tale of two economies — more East versus West? And how does the Bank of Canada balance that?
JIMMY: It’s something we’ve seen before — a version of Dutch disease, if you will. It is a risk, especially if the current oil shock persists. Our base case is that this shock is temporary — maybe lasting a couple of months — and that by the third quarter, oil prices return to the $60 to $70 range.
But if it lasts longer, you could see a two-track economy, where oil-producing regions benefit while manufacturing-heavy provinces like Ontario and Quebec struggle due to higher effective tariff exposure.
The key difference this time is the Canadian dollar. In the past, higher oil prices would push the loonie higher, which would further hurt manufacturing. We haven’t really seen that this time, particularly against the U.S. dollar, due to safe-haven flows into the U.S.
So that dynamic isn’t amplifying the divergence as much as before, but uncertainty around CUSMA still remains.
ROGER: All right, we’ll have to leave it there. Jimmy, thanks, as always, for joining us.
JIMMY: Pleasure. Thank you.
ROGER: Jimmy Jean, chief economist and strategist at Desjardins.
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This BNN Bloomberg summary and transcript of the March 31, 2026 interview with Jimmy Jean are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
