By Robb M. Stewart
OTTAWA--Canada's economy rebounded in the first quarter despite signs activity tailed off in March even with a spike in energy prices as the conflict in the Middle East escalated.
Industry-level gross domestic product rose 0.2% in February, slightly faster than the 0.1% climb recorded in the first month of 2026, and Statistics Canada's advance data indicates output was essentially unchanged in March.
Based on the estimate, the Canadian economy expanded at an annualized pace of 1.7% in the first quarter, after shrinking slightly in the previous quarter. That would be a slightly stronger pace than that expected by the Bank of Canada, which anticipates soft growth this year as the country adjusts to U.S. tariffs that have upended trade.
The national data agency said early information for March suggests Canada saw increases in wholesale trade and in transportation and warehousing. That, it said, was offset by declines in retail trade and in mining and oil-and-gas extraction. Oil prices continued to climb in March, though a U.S. refinery shutdown during the month may have affected Canadian shipments.
The Bank of Canada, which this week again left its key interest rate unchanged, projects the economy will grow 1.5% annualized in both the first and second quarters and 1.2% over the course of the year. The economy contacted 0.6% over the final three months of 2025 due mainly to a sharp drawdown in business inventories.
Statistics Canada's industry accounts for February showed activity was led, for a second straight month, by goods-producing industries, which notched growth of 0.4% on a month earlier.
Manufacturing recorded its strongest monthly growth since January 2023, regaining momentum after a rough past year as the industry was hit by tariffs and heightened trade uncertainty. Machinery led the sector's recovery, while auto-industry output was up sharply following contractions in the previous three months, when several assembly plants were shut for model changes and retooling.
Wholesale trade also returned to growth in February, largely offsetting a decline to start the year, and transportation and warehousing saw broad increases and the largest growth in truck transport since March 2021, thanks in part to cross-border goods movement.
Oil-and-gas extraction increased for a second consecutive month, with higher crude-petroleum output in Saskatchewan and Newfoundland and Labrador, as well as a rise in natural gas. A recovery in metal-ore mining supported growth for the sector, coinciding with increased exports of copper.
Finance and insurance was also up in February, helped by a rise in loan-and-mortgage activity and in bank deposits.
The public sector, however, dragged on overall activity, with broad-based declines following three monthly increases in a row. The arts, entertainment and recreation industry also contracted in February, the first decline in three months and the largest since January 2022 during the pandemic, dented by a two-week break in the National Hockey League schedule as some players competed in the Winter Olympics.
Canada's central bankers remain wary of U.S. trade policy and the potential for an extended war in Iran to keep energy prices elevated. For now, policymakers expect consumption and government spending to support the economy even as exports and business investment remain weak and a slowdown in the housing market weighs.
As an energy exporter, Canada is set to see a boost in the value of shipments from higher oil prices, but the jump in gasoline prices threatens to squeeze wallets and some businesses. The Bank of Canada said there has been little indication so far that higher oil prices have fed through to prices for other goods and services, though the central bank has noted near-term inflation expectations have picked up. Its outlook for the economy assumes oil prices will decline this year.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
April 30, 2026 09:01 ET (13:01 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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