Canadian Monthly Real GDP (February 2020)

Disruptions Stifle February GDP 

• The Canadian economy ended the 'before times' at a virtual standstill, as real GDP was effectively unchanged in February. While this was a bit worse than consensus (+0.1%), the implications for first quarter growth are a rounding error given the scale of the Covid-19 hit estimated in Statistics Canada's earlier nowcast.
• Much of the softness in February is down to disruptions in two key sectors. In transportation and warehousing, rail blockades and a derailment sent the rail transportation subcategory down 5.1% in February. Education services fell nearly 2% on the month, the result of rotating teachers strikes in Ontario. Excluding these two categories, GDP growth would have been 0.2%.
• The goods producing industries expanded by 0.1% overall, helped by a strong showing in mining, quarrying and oil and gas extraction (+0.8%). That subsector was lifted by increased potash production and support activities for oil and gas – this of course being before the era of negative oil prices. 
• Output in the service industries was flat, held back by the aforementioned disruptions. There were still some decent performers, notably real estate, rental and leasing, up 0.5% month-on-month, owing to strong resale activity at the time, and another reflection of how quickly things can change given the drop-off in sales already seen in March's socially distanced data.

Key Implications

• A typical monthly GDP release offers an opportunity for us to review our priors and re-assess our near-term outlook. But these are anything but typical times. The normal few tenths of percentage point adjustments to the near-term growth outlook that would have come with today's report amount to nothing more than noise given the scale of the first quarter pandemic impact (See our April 20 Forecast Update). 
• Instead, the February data gives us a chance to reflect on how quickly the pandemic has changed things. Real estate has gone from running hot to virtual stasis in less than a month's time, and the necessary hit to sectors like accommodation and food services and arts, entertainment and recreation will be historically unprecedented. Fortunately, with economic re-opening plans starting to take shape across the country, there is a little bit of light beginning to form at the end of the tunnel.

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