Banking giant warns spring market may stay quiet as tariffs shake consumer sentiment
Canada’s economy likely grew again in January, but RBC economists warn the momentum could be short-lived as trade uncertainty intensifies and pressure on the housing market deepens.
In a recent commentary, RBC’s assistant chief economist Nathan Janzen and economist Abbey Xu said they expect January’s gross domestic product (GDP) to rise by 0.2% from December, continuing the modest rebound that began at the end of 2023.
This would mark a second straight month of 0.2% growth, albeit slightly below the initial estimate published by Statistics Canada.
“Still, the increase in overall GDP we expect would outpace population growth for a second consecutive month, and comes alongside employment growth and a lower unemployment rate in 2025,” the RBC economists wrote in a recent commentary.
Much of the expected gain came from sectors recovering from earlier disruptions. Transportation output likely rebounded after labour issues in the postal service and port operations suppressed activity in prior months.
Non-conventional oil production in Alberta posted another strong 4% increase in January — following a 2% gain in December — with drilling activity also picking up after two months of decline. Wholesale trade volumes rose by 0.8%.
Outside of those sectors, however, the report is expected to show mixed results.
Retail sales volumes declined by 1.1% in January, while home resales dropped 3.3%, compounding a 5% fall in December. Manufacturing output was expected to remain relatively flat after falling for two straight months.
Meanwhile, job openings tracked by the Survey of Employment, Payrolls and Hours have continued to decline. RBC said they’ll be watching that data closely in the next release.
While January’s indicators reflect modest momentum, RBC emphasized that the numbers remain “ultimately backward-looking,” and may be overshadowed by growing international trade risks.
“We continue to expect the implementation of tariffs and the threat of more to come will weigh on consumer and business confidence and spending in the months ahead,” Janzen and Xu said.
By RBC’s estimate, the effective US tariff rate on Canadian imports has already risen by roughly 2 to 2.5 percentage points — assuming Canadian exporters remain compliant with CUSMA/USMCA rules. But details around another round of planned US tariffs, expected in April, remain unclear.
For the housing market, those trade concerns are already being felt.
“The threat of US tariffs has become top of mind for those considering buying or selling a home in Canada,” said RBC assistant chief economist Robert Hogue.
According to RBC, many buyers and sellers pulled back in February amid fears that aggressive trade actions could inflict lasting damage on the economy. Home resales dropped nearly 10% month-over-month — the steepest decline in nearly three years — while new listings plunged 12.7%, erasing January’s gains. Despite that, active listings continued to rise across most of the country.
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“We expect buyers and sellers to stay cautious in the months ahead across Canada,” Hogue said. “The trade war launched by the US in March threatens to further erode market confidence, upend buyers’ plans and quiet a usually busy spring season. The impact would intensify the longer trade uncertainty rages.”
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