February 2025 GDP: The Canadian economy can’t catch a break, but it can catch a cold.

“The economy took a dive in February, compounded by temporary weather disruptions. First-quarter GDP growth is tracking below the Bank of Canada’s worst-case forecast. Further slowdown should be expected despite manufacturing being one of the growth spots in February, with tariff-driven demand being pulled forward. So, with growth poised to turn negative next quarter, the Bank may have to reconsider its inflation-first stance and pivot to cutting interest rates.”

KEY TAKEAWAYS

• Real gross domestic product dropped 0.2% in February, below expectations of flat growth. This broad-based decline was driven lower by 12 of 20 sectors, with goods-producing sectors declining 0.6%, and services sectors edging down -0.1%.
• While we were expected February GDP to take a hit in February with fewer hours by workers, and overall, less activity due to unusually cold weather disruption, the broad-based nature of the decline is concerning.
• Manufacturing posted another month of growth (up 0.6%), as demand for durable goods has kept the sector growing. Most of this is due to higher activity in the transportation equipment and motor vehicles manufacturing subsectors, which are likely building inventories to avoid forthcoming tariffs.
• Mining, oil, and gas extraction contracted 2.5%, following a strong January. Lower oil sands production resulted in the largest monthly GDP contraction since January 2024. Some harsh temporary weather conditions in Atlantic Canada and an oil tanker collision hurt production. Mining and quarrying also slowed as coal production dropped significantly as demand from Asian countries declined.  
• Real estate and leasing contracted 0.4% in February. Activity for real estate agents was down for the third consecutive month as home resale demand has dampened alongside higher uncertainty about the outlook. Residential construction also declined 0.9% with fewer new dwellings and home renovations.

OUTLOOKS AND IMPLICATIONS

The advanced estimate for real GDP growth in March is +0.1%, which puts the first quarter on pace to grow 1.5% q/q at an annual rate. Not only is below the Bank of Canada’s forecast in January of 2%, but it’s also lower than their recent April Monetary Policy Report scenario of 1.75%.

The pullback in oil and gas activity in February is temporary, but the manufacturing sector, a growth leader this month is expected to show signs of weakness. A partial recovery in hours worked of +0.4% from the March Labour Force Survey could support the GDP flash estimate.

It’s only a matter of time until the economic data begins to reflect what we’ve seen from business and consumer surveys. The Bank of Canada deciding to hold its policy interest rate in April was more about assessing uncertainty ahead. Significant challenges, including broad-based U.S. tariffs on many Canadian goods will grind the economy down in the quarter ahead.

SUMMARY TABLES AND CHARTS