Real GDP grew by 0.4% in January, following a 0.3% increase in December. Both goods producing and service-producing industries rose, with 13 out of 20 sectors rising in January.
Commodity-producing industries contributed significantly to the increase, rising 1.1% in January, the largest increase since October 2021, with all industrial sectors expanding overall in January 2025. Mining, quarrying, oil and gas extraction and manufacturing were the largest contributors to growth. Service-producing industries rose slightly by 0.1%.
Mining, quarrying and oil and gas extraction fuel growth
Mining, quarrying and oil and gas extraction grew 1.8% in January, with all three sub-sectors expanding during the month. This was the second consecutive month of growth for the sector.
The oil and gas extraction sector was the largest contributor to growth, growing 2.6% in January. Oil sands extraction rose 3.6%, driven by increased industrial crude oil production in Alberta. This is the fourth increase in six months for oil sands extraction. Meanwhile, oil and gas extraction (excluding oil sands) rose 1.5% in January as natural gas extraction rose, coinciding with increased exports, domestic shipments and natural gas storage. The rise in crude oil extraction has contributed to the growth of this sector.
Supporting the mining and oil and gas extraction sector (+1.0%) was the second largest contributor to the sector’s growth in January. The rise in activity in January partially offset the noticeable declines in the previous two months and was driven by a recovery in mining support activities. At the same time, oil and gas extraction support activities rose, as higher drilling largely offset the contraction in rig services.
The mining and quarrying sector (excluding oil and gas) rose 0.1% in January, as higher coal mining (+4.4%) and non-metallic mining and quarrying (+1.6%) offset broad declines in mineral ore mining (-1.2%).
What external factors do you think affect Canada’s monthly GDP and CAD?
Canada’s GDP and the value of the Canadian dollar (CAD) are influenced by a variety of external factors, including:
Global trade and trade agreements: As a major exporter, especially of natural resources, Canada is sensitive to global demand, especially from major trading partners such as the United States and China. Changes in global trading conditions or tariffs can affect Canada’s exports, which in turn affects GDP and the Canadian dollar.
Commodity prices: Canada is a large exporter of commodities, including oil, natural gas, and metals. Fluctuations in global commodity prices can have a significant impact on Canada’s GDP and the Canadian dollar. For example, lower oil prices could weaken the Canadian dollar, as oil is one of Canada’s largest export products.
U.S. Economic Performance: The United States is Canada’s largest trading partner. Economic conditions in the United States, such as growth rates, interest rates, and inflation, can affect Canadian exports and the Canadian dollar. The stronger U.S. economy tends to boost demand for Canadian goods and services, strengthening the Canadian dollar.
Global Economic Conditions: In times of global economic uncertainty, such as recessions or trade tensions, investors may seek safe-haven currencies such as the US dollar, which could weaken the Canadian dollar. Conversely, strong global growth often supports demand for Canadian exports and strengthens the Canadian dollar.
China’s Economic Influence: As a major consumer of commodities, especially oil and metals, China’s economic growth directly affects Canada’s export earnings. A slowdown in China’s economy could lead to lower commodity prices and hurt Canadian exports, which could affect GDP and the Canadian dollar.
These external factors create a complex relationship between Canada’s economic performance and its currency, making the Canadian dollar sensitive to global economic shifts.
How does Bank of Canada’s policy affect your outlook for the Canadian dollar and its relationship to monthly Canadian GDP growth?
The Bank of Canada’s monetary policy plays a crucial role in shaping the Canadian dollar’s outlook and its relationship to GDP growth. Here’s how:
- Interest rates and Canadian dollars
Interest rate decisions: Bank of Canada’s policy decisions on interest rates are one of the most direct ways they affect the value of the Canadian dollar. Higher interest rates usually attract foreign investment, as they offer better returns on investments denominated in Canadian dollars.
Controlling inflation: If inflation is high, the Bank of Canada may raise interest rates to control inflation, which could strengthen the Canadian dollar. However, if the Bank of Canada cuts interest rates to stimulate growth, the Canadian dollar could weaken. The Canadian dollar often moves in response to changes in the Bank of Canada’s policy stance compared to those of other central banks, especially the US Federal Reserve.
- Quantitative easing and monetary stimulus
Asset purchases: If the Bank of Canada engages in quantitative easing (buying government bonds and other assets), it increases the supply of Canadian dollars in the economy, which can lead to currency depreciation.
Economic stimulus: When the Bank of Canada implements accommodative policies, such as low interest rates or quantitative easing, it encourages borrowing and spending, which may boost domestic consumption and investment – key components of GDP growth. However, a weaker Canadian dollar could make imports more expensive, leading to inflationary pressures, which could counteract long-term growth.
- Economic growth and monetary policy
Inflation targeting: The Bank of Canada’s mandates include keeping inflation close to its target (usually around 2%). If the Bank of Canada realizes that economic growth is slowing and inflation is under control, it may cut interest rates to stimulate the economy.
