International Trade Temporarily Boosts Quebec's GDP Growth in Q1, Says National Bank

12:28 PM EDT, 06/26/2025 (MT Newswires) -- Gross domestic product growth in Q1 accelerated compared with the last quarter of 2024, but this shouldn't be seen as a sign of strength for the Quebec economy, said National Bank of Canada.

This increase is largely due to a significant jump in exports, as trading partners in the United States brought forward many purchases at the beginning of the year to avoid the impact of tariffs, wrote the bank in a note to clients.

To illustrate this phenomenon, international exports of goods jumped 20.4% on a quarterly annualized basis, compared with an increase of only 1.0% in exports of goods to other Canadian provinces. Quebec businesses also increased their imports, but to a lesser extent, which translated into a strong contribution from net trade and an accumulation of inventories.

Excluding the effects of international trade and inventories, final domestic demand remained roughly stable in Q1, after a "spectacular" jump in Q4 2024. It turns out that auto sales had been artificially inflated in Q4 with the significant reduction in electric vehicle subsidies announced for 2025, and that a reversal was going to occur, stated National Bank.

Nevertheless, the trade dispute with the U.S may also have weighed on consumption (-2.4%), as evidenced by the 1.0% decline in services.

Q1 data does contain some good news, added the bank. It noted the sustained growth in investment in machinery and equipment (+8.1%) and intellectual property products (+4.5%) despite the uncertain economic environment. Investment in residential buildings also rose significantly in Q1, up 24.3%, marking the fourth consecutive quarter of growth after a 47.7% jump in Q4, while housing starts in the province continue to perform well.

Investment in new construction rose 72.2%, while commissions and acquisition costs increased only 6.2% and renovation spending fell 3.7%.

Looking ahead, National Bank expect to see a reversal in international trade after the front-loading of purchases in Q1. In a context of continued high uncertainty, GDP in Q2 could temporarily slip into negative territory.

However, the bank believes that Quebec has certain strengths to weather the current difficulties, as households are less indebted and have higher savings rates than elsewhere in the country. In addition, Quebec is the province with the most diversified exports in the federation.

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