Canada’s gross domestic product (GDP) may appear stable, but its foundation is anything but. Statistics Canada (Stat Can) data shows that real GDP rose 0.5% in Q1 2025, matching Q4 2024 after a downward revision. While the headline signals expansion, it conceals a more troubling reality: domestic economic activity is flatlining, and the terms of trade have slipped into negative territory—a combination that threatens household resilience and national income.
Canadian Consumer Spending Slows Sharply In Q1 2025
The biggest red flag in the GDP report is the stall in domestic demand. Household spending slowed to just 0.3% in Q1 2025—a quarter of Q4’s pace. Residential investment plunged 2.8%, a result of weak existing home sales. On a per capita basis, consumption rose a mere 0.1%, down sharply from 0.8% in Q4.
Despite headline growth, final domestic demand was flat. Total spending within the country failed to grow for the first time since 2023. Canadian households have stopped increasing their consumption, and for a country dependent on consumer demand—that’s an ominous development.
Canadian Exports Boost GDP, But Trade Terms Turn Negative
Exports fueled the lion’s share of Q1 growth, rising 1.6%—just shy of the 1.7% gain in Q4. Most of this was driven by U.S. importers stockpiling Canadian goods ahead of potential tariffs, creating a temporary bump in demand. While that’s good news for domestic producers in the short term, it likely front-loads demand that will taper off as the year progresses.
Even as exports boosted GDP, Canada’s trade position worsened. Import prices climbed faster than exports, pushing the terms of trade down 0.6% in Q1. In plain English, Canada is getting less for its exports, while paying more for what it buys—a deteriorating trade position. The result? Downward pressure on the loonie and a decline in national purchasing power.
Canadian Households Prosper On Paper, But Not In Reality
Canadian output posted solid growth, but the underlying details tell a different story. Households are pulling back, and rising trade frictions are eroding gains from exports.
Economists have recently been asking why consumer sentiment remains negative while macro data appears strong. But the answer is clear once you look beyond the headline figures: households aren’t prospering. The prosperity is largely statistical, existing in models and aggregates—not in the reality consumers live. Someone is benefiting in this environment, but it’s not the average household.