Statistics Canada reported Tuesday that Real gross domestic product (GDP) increased 0.2% in February, following a 0.5% gain in January.
Services-producing industries (+0.2%) led the growth for a second month in a row, fuelled by gains in transportation and warehousing. The goods-producing industries aggregate was essentially unchanged as the mining, quarrying, and oil and gas extraction sector expanded while the utilities and manufacturing sectors contracted in February. Overall, 12 of 20 sectors increased in the month, it said.
James Wheeler
“Advance information indicates that real GDP was essentially unchanged in March. Increases in utilities and real estate and rental and leasing were offset by decreases in manufacturing and retail trade. Owing to its preliminary nature, this estimate will be updated on May 31, 2024, with the release of the official GDP by industry data for March,” said the federal agency.
“With this advance estimate for March, information on real GDP by industry suggests that the economy expanded 0.6% in the first quarter of 2024. The official estimate for the first quarter will be available on May 31, 2024, when the official estimate of real GDP by income and expenditure is released.”
The report said transportation and warehousing increased 1.4% in February, the largest monthly growth rate since January 2023, as six of nine subsectors were up. A rebound in rail transportation (+5.5%) contributed the most to the increase in February 2024 as activity returned to normal following January’s cold snap in Western Canada. Air transportation rose 4.8% in February, its largest growth rate since May 2022. This seventh consecutive monthly increase was driven by growth in international travel as some carriers increased flight capacity to Asia to reflect higher demand for travel leading up to the Lunar New Year. The accommodation subsector (+1.1%) also expanded as the number of overseas travellers entering Canada rose in February 2024. Pipeline transportation increased 1.6% in February, partially offsetting a decline of 1.9% in January. Crude oil and other pipeline transportation rose 3.4% in February, reflecting higher exports of the commodity, while pipeline transportation of natural gas edged down 0.2%.
“The public sector (consisting of educational services, health care and social assistance and public administration) grew 0.2% in February, following a 1.9% increase in January,” it said.
“The educational services sector edged up 0.1% in February following a 6.1% gain in January, when activity rebounded from the declines in the previous two months attributed to the Quebec public sector workers’ strike. The elementary and secondary schools industry group grew 0.3% in February, even as rotating strikes by the Saskatchewan Teachers’ Federation dampened some of the growth.
“After declining 2.3% in January, mining, quarrying, and oil and gas extraction increased 2.5% in February, expanding for the fourth time in five months. Oil and gas extraction expanded 3.3% in February, partially offsetting January’s contraction when extreme cold across the Prairies impacted production. In February all types of production were up, led by a 4.4% increase in oil and gas extraction (except oil sands) as both higher natural gas extraction and crude petroleum extraction contributed to the growth. Oil sands extraction rose 2.1%, led by higher crude bitumen extraction in Alberta. Mining and quarrying (except oil and gas) increased 1.9% in February, more than offsetting the January decline. Metal ore mining was up 2.3% as most types of mining activities were up. Gold and silver ore mining was up for the third month in a row, rising 4.4% in February, as multiple gold mines in Canada increased production, coinciding with all-time high exports of gold.”
Andrew Grantham, Senior Economist, CIBC Capital Markets, said “momentum in the Canadian economy appears to have faded quickly as the first quarter progressed.
“February GDP posted a 0.2% gain, which was a tick below the consensus forecast and two-ticks weaker than the advance estimate. The modest growth in February followed a slightly downwardly revised 0.5% increase in January (previously +0.6%). Mining, oil & gas, transportation and the public sector led growth in February, offset partially by declines in utilities and manufacturing. The advance estimate for March suggests little change in GDP, with activity held back by a further decline in manufacturing and also a drop in retailing. Growth for Q1 as a whole is now tracking a 2.5% annualized pace,” he said.
“While there is often a difference between today’s industry figures and the expenditure data released next month, at the moment Q1 growth is still tracking close to the 2.8% forecast by the Bank of Canada in its April MPR. However, the weak end to the quarter could mean downside risk for the Bank’s expectation for 1.5% annualized growth in Q2. We always suspected that strength at the start of the year largely reflected an easing of previous supply constraints and the effects of better than normal winter weather, and that the economy could stall again thereafter. Today’s data appear to support that view.”
Benjamin Reitzes, Managing Director, Cdn Rates & Macro Strategist, BMO Capital Markets, said: “While Q1 looks like it was decent overall, the loss of momentum as the quarter progressed is the bigger takeaway from this report. That puts additional pressure on the BoC to begin cutting as soon as June (which is still dependent on CPI in a few weeks). Unfortunately, persistently strong U.S. data are making things increasingly complicated for the Bank, as it appears that the Fed could be on hold for a while.”
Marc Ercolao, Economist, TD Economics, said 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,” he said.
“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.”
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list. He was also named by RETHINK to its global list of Top Retail Experts 2024.
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