Canadian Economy

REAL GDP UP 0.2% IN FEBRUARY

Real GDP rose 0.2% in February, following a 0.5% increase in January. Looking ahead, a preliminary estimate points to a flat reading in March. Put together, real GDP growth in the first quarter is on track to grow by a solid 2.5% on an annualized basis. However, with the economy losing momentum as the quarter progressed, the stage is set for weaker growth in Q2. This supports expectations that the Bank of Canada will start to gradually reduce interest rates in June or July.

MANUFACTURING DOWN FOR SECOND TIME IN THREE MONTHS

Manufacturing output contracted 0.4% in February, down for the second time in three months. To make matters worse, Statistics Canada’s advance estimate signalled that manufacturing activity decreased again in March. Taking a longer-term view, manufacturing output has decreased by 1.4% over the past 12 months. The sector continues to be weighed down by several headwinds, including structural workforce challenges, an uncertain business environment, and high interest rates.

Digging deeper, output was down in 10 of 20 manufacturing sectors in February. The chemical industry fell the most, declining by 3.5%. Output contracted in 4 of 7 subsectors, led by resin, synthetic rubber, and artificial and synthetic fibres and filaments manufacturing and basic chemical manufacturing.

The auto sector also had a tough month, as motor vehicle and parts manufacturing decreased 2.9% in February. This was the fifth decline in seven months, as shutdowns for retooling activity continued to impact production.

Meanwhile, beverage and tobacco product manufacturing tumbled 5.1% in February, the third decline in four months and the biggest monthly drop since November 2022. All four subsectors contracted, with the steepest losses occurring at wineries and breweries.

On the positive side of the ledger, machinery manufacturing expanded 2.5% in February, up for the third time in four months. Two subsectors drove the gains: agricultural, construction and mining machinery manufacturing and other general-purpose machinery manufacturing.

In more good news, computer and electronic product manufacturing jumped 5.1% in February, building on the robust 4.1% growth observed in January. The gain was propelled by electronic product manufacturing.

ECONOMIC GROWTH DRIVEN BY SERVICES

Returning to the broader economy, output was up in 12 of the remaining 19 major sectors in February. For the second consecutive month, economic growth was driven by the services sector (+0.2%), as activity on the goods side remained essentially unchanged.

After declining 2.3% in January, mining, quarrying, and oil and gas extraction increased 2.5% in February, expanding for the fourth time in five months. Oil and gas extraction activity rebounded after experiencing a significant drop in January when extreme cold weather across the Prairies affected production.

Transportation and warehousing increased 1.4% in February, the largest monthly gain since January 2023, as six of nine subsectors were up. A rebound in rail transportation contributed the most to the increase as activity returned to normal following January’s cold snap in Western Canada. In addition, air transportation posted its seventh consecutive monthly expansion.

The public sector—educational services, health care and social assistance, and public administration—rose 0.2% in February, following a 1.9% increase in January. Notably, educational services edged up 0.1% in February, following a 6.1% surge in January that was triggered by the end of the Quebec public sector workers’ strike.

On the negative side, utilities output contracted 2.6% in February, partially offsetting a 3.2% gain in January when an extreme cold snap in Western Canada resulted in elevated demand for heating.