The Canadian economy grew for a second straight month in February, up 0.2% on a month-on-month (m/m) basis. This print comes in slightly below Statistics Canada’s advanced guidance and market expectations for a 0.4% and 0.3% m/m gain, respectively. The flash estimate for March points to flat growth.
February’s reading was broad-based, with output expanding in 12 of 20 industries. The gain, similar to January, was services driven (0.2% m/m), while the goods sector remained essentially unchanged.
The services side gain was aided by a 1.4% m/m increase in the transportation and warehousing sector and a continuation of growth in the public sector (0.2% m/m) after January’s surge. Wholesale trade and the finance and insurance sector saw modest growth of 0.3% m/m.
On the goods side, oil and gas sector output advanced by a healthy 3.3% m/m, reversing January’s decline. Offsetting growth was a 2.6% m/m contraction in the utilities sector and a 0.4% m/m decline in manufacturing.
The advanced reading of flat growth in March is due to gains in utilities and real estate being offset by decreases in manufacturing and trade.
Key Implications
The Canadian economy continued to grow into February, but at a slightly slower speed after January’s downwardly revised print and February’s downside miss. Still, with today’s print and next month’s guidance, first quarter GDP is tracking a healthy 2.5% q/q annualized, in line with the Bank of Canada and our estimates.
While today’s GDP report reinforces expectations that first quarter growth will post a decent print compared to the meager growth seen over 2023, the deceleration in February and March signal this rebound is unlikely to last. This should encourage the Bank of Canada, which needs to make sure inflation is on a sustainable path back to 2%. At this stage, market pricing is split down the middle between the first interest rate cut occurring in June or July. We lean towards the latter as it will give the Bank slightly more time to ensure that inflationary trends are durable.
