February 2024 GDP: Canada on pace for decent growth in the first quarter, but momentum is slowing

Canada’s real GDP is on pace for annualized growth of about 2.5% in the first quarter of the year. This is certainly a better performance than most had expected a few months ago. That said, growth has been choppy due to several temporary factors, such as extreme weather and strikes that have buffeted several sectors.

Looking through the noise in the monthly data, the overall picture is that momentum is slowing in Canada’s economy and inflation coming under control. The good news is that interest rate cuts are coming from the Bank of Canada this summer. The only question is whether they’ll arrive in June or July — which is basically a coin toss at this point, and will come down to the next release of inflation data in late May

Stephen Tapp, Chief Economist, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

• Real gross domestic product rose 0.2% in February, slightly below the consensus forecast of 0.3%. This comes on the heels of January’s exceptionally strong growth of 0.5% — which was temporarily boosted by the return of public sector educational workers in Quebec at the end of a strike. Services rose 0.2% in February, while the goods sectors were essentially flat.

Movers and Shakers

• Overall, 12 of 20 sectors increased on the month.
• Strength was led by mining, oil and gas (+2.5%), and transportation and warehousing (+1.4%) — both sectors benefited from rebounds in February, which followed extreme cold in January that hampered production. Public sector output (+0.2%) continued to recover following the earlier Quebec strike.
• Weakness was felt in the utilities sectors, which declined by 2.6%, but it too had been significantly impacted in January by cold weather that temporarily boosted demand. Auto production (-2.9%) was hurt by plant shutdowns for retooling.

OUTLOOK AND IMPLICATIONS

• The advanced estimate for real GDP in March is essentially flat. This puts the first quarter on track to grow by roughly 2.5% annualized, which is close to the Bank of Canada’s latest forecast of 2.8%.