‘Real drama now begins’ as economists predict zero growth ahead off a waning first quarter

Chrysler Minivans that were assembled at the Stellantis Windsor Assembly Plant sit in a storage lot nearby in Windsor, Ont., on April 3, 2025. Photo by JEFF KOWALSKY/AFP via Getty Images

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Canada’s gross domestic product likely rebounded slightly in March after contracting more than expected in February, leading some economists to signal that first-quarter growth will fall short of the Bank of Canada’s estimate and be followed by a no-growth second quarter or worse.

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A flash estimate for March released by Statistics Canada on Wednesday said the economy grew 0.1 per cent month over month, but growth contracted 0.2 per cent in February compared with economists’ estimate for no change.

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The agency said poor weather in February contributed to some of the pullback in February, but economists said Canada’s economy has been slowing since posting monthly growth of 0.4 per cent in January.

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Here’s what they think the numbers mean for the economy, the Bank of Canada and interest rates.

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‘Starting to wane’: TD

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“The economic momentum that carried into the early stages of 2025 is starting to wane,” Marc Ercolao, an economist at TD Economics, said in a note, adding that TD is currently forecasting first-quarter annualized GDP growth of 1.5 per cent.

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“Past this, the outlook is turbulent, with clear downside risks to Canada’s economy as the direct impact from tariffs adds to the headwinds from plunging sentiment,” he said, referring to Bank of Canada surveys that indicate business and consumer views of the economy have dimmed.

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Future interest rate decisions by the Bank of Canada will be no easy matter, he said. Policymakers in April decided to hold interest rates at 2.75 per cent even though their outlook for the economy was downbeat.

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“With Canada’s housing market visibly strained, and some rollover in labour markets and consumer spending, we’d expect the (Bank of Canada) to cut its policy rate by 25 basis points at their next meeting in June,” Ercolao said.

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‘Sharp’ slowdown: Capital Economics

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“There were only tentative signs of a rebound in March,” Stephen Brown, deputy chief North America economist at Capital Economics Ltd., said in a note, adding that whatever gains were achieved from improved weather in March were offset by the start of United States tariffs, which will target manufacturing.

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He is calling for first-quarter annualized growth of 1.6 per cent, which is below the Bank of Canada’s estimate.