Leading economists digest the latest reading of Canada’s economy
The Canadian economy shrank in February having started the year on a positive, as the goods producing sector lost the steam that had powered the earlier growth.
Statistics Canada reported Wednesday that real GDP declined 0.2% in February compared to the previous month; January had posted a monthly 0.4% increase. Mining, quarrying, and oil and gas extraction and construction were the largest drag on growth with the overall goods producing sector posting a 0.6% decline month-over-month.
Services also lost, declining 0.1% as transportation and warehousing and real estate and rental and leasing weakened but were partially offset by a rise in finance and insurance.
In fact, the investment services industry was a bright spot in the data, with ‘financial investment services, funds, and other financial vehicles’ recording a 2.7% increase in GDP in February as market activity rose including the divestment of Canadian shares by non-residents. The overall financial and insurance sector gained 0.7%.
Preliminary estimates for March suggest 0.1% growth which would mean around 1.5% growth on an annualized basis for the first quarter.
The softer economy is partly due to Trump’s tariffs, but not entirely, with bad weather, weak sentiment, and the end of the GST pause all contributing factors.
“Looking forward, we expect direct tariff impact will be relatively contained but a weaker US economy will continue to spill over and negatively impact Canada,” said RBC Economics’ Claire Fan. “Growth in GDP is expected to halt in the coming quarters while the unemployment rate edges higher into the second half of this year.”
And Scotiabank’s Derek Holt is equally downbeat on the outlook: “Q1 was probably the peak for Canadian GDP growth this year. Our forecast has less than 1% q/q annualized growth in every remaining quarter of 2025 and there is likely more downside than upside risk to that thanks to Trump’s damaging policies against the US and global economies.”
At TD Economics, Marc Ercolao thinks that the latest data adds likelihood of a BoC rate cut next month.
“Policymakers at the BoC have their work cut out for them,” he wrote in a commentary. “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.”
