OTTAWA—The Canadian economy grew in the first quarter on the strength of exports and consumer spending, but the increase fell short of expectations and sets the stage for a weak second quarter as the country continues to adjust to lower commodity prices. Canada’s gross domestic product, or the broadest measure of goods and services produced in an economy, expanded at a 2.4% annualized rate in the first quarter to 1.78 trillion Canadian dollars ($1.37 trillion), Statistics Canada said Tuesday. The result was below consensus for a 2.8% advance, according to economists at Royal Bank of Canada, and well off the 3% growth some market watchers had predicted for the January-to-March period. Still, the gain marks a rebound from a downwardly revised 0.5% increase in the fourth quarter and compares favorably with the early estimate of a 0.8% gain in U.S. GDP in the first quarter and eurozone growth of 2.1%. Data for March, however, showed the Canadian economy ended the first quarter with a thud. GDP in the final month of the quarter declined 0.2%, compared with expectations for a 0.1% drop. Weakness in the commodity sector was the main reason for the drop, which marked the second-straight month-over-month decline in GDP following a strong result in January. The latest report underlines the uncertainty over a recovery for the resource-reliant economy, and has market watchers predicting the Bank of Canada will not consider raising its benchmark-lending rate anytime soon. “The market will look way beyond this first-quarter result, because that strength is well into the rear-view mirror,� said Douglas Porter, chief economist at BMO Capital Markets. The data agency also lowered its economic-growth view for 2015 to 1.1% from its previous estimate of 1.2%. In its most recent rate decision, the Bank of Canada left its main interest rate unchanged and warned the wildfires in oil-rich Alberta could trim about 1.25 percentage points from real GDP in the second quarter. That could mean a contraction in the second quarter based on the central bank’s earlier prediction of 1% annualized growth for the period. Tuesday’s disappointing report will likely reinforce this view. David Tulk, chief Canada strategist at TD Securities, said the economy could shrink by up to 0.5% annualized in the second quarter, partly due to the negative fallout from the still-burning Alberta wildfires. “The dynamic of temporary strength in the first quarter didn’t come through as expected,� Mr. Tulk said. “When you step back it still remains a very challenging environment for the Canadian economy.� The state of the country’s non-resource sector adds to Canada’s uncertain economic outlook. Trade and manufacturing were expected to help drive growth and offset weakness in the battered commodity sector, but indicators for February and March were weak. Elements in the GDP report underscore the struggles Canada is facing from lower commodity prices, which account for 20% of the country’s nominal GDP, or the broadest gauge of income. Export volumes rose 1.7% in the quarter but fell 0.8% in nominal terms, reflecting price declines in the energy sector. As a result, income at non-financial corporations fell 1.3%, the agency said. Business investment in non-residential structures dropped 2.5%, the fifth consecutive quarterly decline. Companies have curtailed spending plans to deal with the drop in the price of crude oil, which is a key Canadian export. Canada’s terms of trade, or the amount of cash Canadians pocket from the sale of exports after it pays for its imports, also hit their lowest level since the third quarter of 2003.

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