Canada’s GDP growth misses expectations in February, hints at modest Q1 expansion
Canada’s economy grew by 0.2% in February, slightly below the market expectations of 0.3%, according to the latest data.
This modest rise follows a downward revision for January’s growth, which was adjusted from 0.6% to 0.5%.
Statistics Canada also provided a preliminary estimate for March, suggesting that the GDP likely remained unchanged from February, balancing gains in utilities and real estate against declines in manufacturing and retail sectors.
First quarter growth likely fastest since early 2023
Despite the tepid performance in February and March, Canada’s economy is estimated to have expanded at a 2.5% annualized rate in the first quarter of the year.
If confirmed, this rate would mark the fastest quarterly growth since the same period in 2023.
The Bank of Canada had previously forecast a slightly higher growth rate of 2.8% for the quarter following a 1% increase in the fourth quarter of 2023.
Implications for monetary policy
The moderate economic rebound observed since the latter half of last year has reduced some of the immediate pressures on the Bank of Canada to lower interest rates to stave off a downturn.
However, financial markets are still anticipating a potential rate cut, with odds favoring a reduction at the central bank’s upcoming meeting on June 5, and a July cut fully priced in by investors.
Currency reaction and inflation considerations
Following the release of the GDP data, the Canadian dollar weakened, trading down by 0.44% at C$1.3719 against the US dollar.
This comes in the context of the Bank of Canada maintaining its key policy rate at a 23-year high of 5% in an effort to curb inflation.
With headline inflation recorded at 2.9% in March, close to the central bank’s target, the potential for a rate cut in June remains contingent on the persistence of this cooling inflation trend.
Sector-specific growth drivers
The slight growth in February was primarily driven by the services-producing industries, which saw a second consecutive monthly increase.
The transportation and warehousing sector reported a 1.4% growth in February, marking the largest monthly growth rate since January 2023.
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