Canadian Monthly GDP (February 2025)

Canada's economy flatlined in February, small rebound expected in March  

• Canadian GDP fell by 0.2% month-on-month (m/m) in February, unwinding part of the strong gain the month prior. The reading was a touch softer than Statistics Canada and consensus expectations for flat growth. For March, Statistics Canada's flash guidance points to modest GDP growth of 0.1% m/m.
• February's reading was broad-based, with output contracting in 12 of 20 industries. Growth in goods industries contributed most to the decline (-0.6% m/m), while the services sector edged lower by a smaller 0.1% m/m. 
• On the goods side, mining/quarrying/oil & gas (-2.5% m/m) contributed most to the drop in February GDP. A 0.9% m/m decline in residential building construction pulled the overall construction sector down for the first time in four months. Modest growth in utilities (0.8% m/m) and manufacturing (0.6% m/m) provided a positive counterbalance
• On the services side, the real estate sector (-0.4% m/m) was the biggest detractor to growth, consistent with slowing homebuying activity in February. The transportation and warehousing sector (-1.1% m/m) also contributed to February's GDP decline, impacted by major snowstorms in the month. Elsewhere, the finance and insurance sector (+0.7% m/m) grew for a third consecutive month.

Key Implications

• The economic momentum that carried into the early stages of 2025 is starting to wane. With the information we have at hand, Q1-2025 growth is tracking around 1.5%, a few ticks below the Bank of Canada's April MPR projections. Past this, the outlook is turbulent, with clear downside risks to Canada's economy as the direct impact from tariffs add to the headwinds from plunging sentiment.
• Policymakers at the BoC have their work cut out for them. The Bank opted to hold the policy rate steady at 2.75% last meeting, despite appearing reasonably downbeat about economic growth prospects highlighted in their scenario analysis. With Canada's housing market visibly strained, and some rollover in labour markets and consumer spending, we'd expect the BoC to cut its policy rate by 25 bps at their next meeting in June.            

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