Canada's economy grew at an annualized 2.2% in the first quarter, beating median forecasts of 1.7%, driven by a surge in exports as U.S. companies increased stockpiling ahead of anticipated tariffs.

But despite the robust headline figure, underlying components of the economy showed weakness. Final domestic demand — a measure of total spending by households, businesses and governments — remained fragile, contracting 0.1%. Household spending per capita rose just 0.1%, compared with the much stronger 0.8% growth rate in the prior quarter.

“The weak final domestic demand reading for Q1 suggests that the economy was stalling even before feeling the full impact of tariffs,” Royce Mendes, Managing Director & Head of Macro Strategy at Desjardins Capital Markets, wrote in a research note. “Given the deterioration in recent labour market indicators, we believe that the economy will struggle to post meaningful growth in the second quarter.”

Mendes predicts the Bank of Canada will cut interest rates another 25 basis points at its meeting next week.

On a monthly basis, GDP increased by 0.1% in March, following a 0.2% contraction in February, Statistics Canada reported Friday. Preliminary data suggests a similar gain for April.