Canada’s gross domestic product edged up by 0.2 per cent in February and preliminary figures suggest the economy dodged a recession in the first quarter, bouncing back from a contraction to end 2025.

February’s growth, according to Statistics Canada data released on Thursday, was primarily driven by goods-producing industries, led by a manufacturing sector that expanded by 1.8 per cent, its largest gain since January 2023.

Wholesale trade and resource extraction also drove growth for the month, alongside the transportation, warehousing, finance and insurance sectors.

Initial estimates for March suggest that GDP was essentially flat, with increases in the wholesale trade as well as transportation and warehousing sectors offset by decreases in retail and resource extraction.

As a result, preliminary estimates suggest the economy grew by 0.4 per cent in the first quarter — on track for a 1.7 per cent annualized rate.

The agency said those figures could change, and an official estimate for the first quarter is expected in late May.

The economy had contracted at an annualized rate of 0.6 per cent in the fourth quarter of 2025, bringing Canada’s real GDP growth to 1.7 per cent for the full year. Lower exports, especially exports to the U.S., were the main contributor to slower GDP growth last year, StatsCan said.

Benjamin Reitzes, managing director of Canadian rates and a macro strategist for Bank of Montreal Capital Markets, said the economy is “hanging in there” and February’s figures were in line with expectations.

“There are a lot of uncertainties hanging over things and clouding the outlook,” he said. “The economy is just treading water as we wait for some resolution on trade. Now we have the added shock of higher energy prices, and we’ll see how that unfolds from an economic perspective. It’ll probably drive a little more regional divergence in the economy.”

Reitzes noted Canada managed to escape a recession — defined as two consecutive quarters of negative growth — and he expects the economy to rebound after Canadian and U.S. officials reach an agreement on tariffs and the Canadian-U.S.-Mexico Agreement review (CUSMA).

“At no point in time are we expecting a recession. The economy is growing. It’s not great growth, but it is better than a recession,” he noted.

“It’s a challenging time for everybody and a challenging time for the economy. Fortunately, the economy is kind of able to turn out enough growth that we’re not seeing material layoffs in the economy…. But don’t be surprised if it remains challenging.”

Randall Bartlett, deputy chief economist for Desjardins, noted that the data reflects an economy before the oil price shock that started with the conflict in Iran in early March.

“The Canadian economy was in pretty good shape. At the end of the day, we saw four consecutive months of economic growth,” he said.

“This is kind of in the rearview mirror at this point. The real challenge to the Canadian economy lies ahead.”

Bartlett said a weak Canadian economy and potential additional tariff measures from the U.S. will likely keep recession risks elevated. However, Desjardins is not expecting this to happen going forward.

“We think that, largely, the Canadian economy has escaped that recession risk coming out of 2025 and now we’re in this middling stage of relatively weak growth. We think a trade deal would help to provide some more certainty around that direction,” he noted.

Bartlett added that government supports, such as freezing the fuel excise tax and the Groceries and Essentials benefit, will provide some relief for families and individuals who are most susceptible to rising prices and elevated cost of living.

“Weak growth feels like a recession for a lot of folks. A lot of households are getting squeezed. I think there is some relief coming, but it won’t show up in the data just yet,” he said.

  • Lower-than-expected deficit, affordability measures take centre stage in Ottawa’s spring fiscal update
  • Carney launches $25-billion sovereign wealth fund that will allow Canadians to share in profits

“Is it going to be enough to support everyone? I think there’s still going to be a lot of challenges for a lot of folks, but ultimately, there is some relief coming. I think it’s going in the right direction.”

The data comes a day after the Bank of Canada held its key interest rate at 2.25 per cent for the fourth time, but warned it would be closely monitoring the impact and uncertainty rising oil prices may have on inflation in the coming months.

The central bank projected that Canada’s economy will accelerate from 1.2 per cent in 2026 to 1.6 per cent in 2027 and then 1.7 per cent in 2028.