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Economy Weakens in February

Canadian Economics

By: Viktor Cicman

    

  • Real gross domestic product (GDP) was down 0.2 per cent month-over-month in February following an increase of 0.4 per cent in January. Goods producing sectors contributed the most to the decrease, falling by 0.6 per cent, but service-producing industries also fell, by 0.1 per cent.
  • Following two consecutive monthly increases, the mining, quarrying, and oil and gas extraction sector became the largest contributor to the decline, contracting 2.5 per cent in February. Crude petroleum extraction fell sharply, impacted by lower light and heavy crude extraction in Alberta as well as reduced offshore production in Newfoundland and Labrador.
  • One bright spot was manufacturing, which rose 0.6 per cent in February, its fourth monthly gain in a row. Durable-goods led growth in the sector as machinery manufacturing expanded by 5.9 per cent, posting its strongest monthly increase since February 2023.
  • Construction contracted for the first time in four months, falling by 0.5 per cent in the month. Residential building construction was the largest contributor to the decline. This was the sub sectors largest decrease since April 2024, reflecting fewer housing starts and renovations.
  • Likewise, the real estate and rental and leasing sector contracted 0.4 per cent in February, posting its largest decline since April 2022. Offices of real estate agents and brokers fell sharply by 10.4 per cent in the month, and it was its third consecutive monthly decline, reflecting a cooling housing market.
  • Weather also had an impact on real GDP. Major snowstorms that hit Central and Eastern Canada likely hurt activity across several sectors, particularly transportation and warehousing, which contracted 1.1 per cent. Transit, ground passenger, scenic and sightseeing transportation fell 3.4 per cent, while rail transportation declined by 5.6 per cent due to commuter train cancellations and capacity and speed reductions from the adverse weather.

Insights

With the release of February’s GDP by industry data, growth in the Canadian economy is showing signs that it slowed in the first quarter of 2025. After contracting 0.2 per cent in February, advanced estimates for March show a slight 0.1 per cent increase, bringing first quarter growth to 1.6 per cent on an annual basis, noticeably lower than the 2.6 per cent figure in the previous quarter. While January recorded solid real GDP growth, much of that momentum stemmed from pre-emptive spending by businesses and consumers ahead of expected tariffs. However, it’s becoming increasingly clear that these tariffs will weigh on growth, at least in the short term. The latest Labour Force Survey reported that the Canadian economy shed 33,000 jobs in March, and both consumer and business confidence have deteriorated sharply in the early months of the year. These are among the most concerning signals for the Canadian economy, which is in for a bumpy ride in 2025.

The Bank of Canada held its key policy rate steady at 2.75 per cent during its April meeting. With inflation continuing to stay within the Bank’s target range of 1 to 3 per cent, policymakers are proceeding cautiously amid ongoing economic uncertainty. Notably, the Bank chose not to issue its usual economic forecasts at its last meeting, instead outlining two potential scenarios—including one predicting a deep recession coupled with a spike in inflation. Governor Macklem emphasized that the Bank is prepared to act decisively if the economy requires support.

With the federal election now concluded, all eyes will be on fiscal policy as the Canadian economy navigates substantial challenges. These include diversifying trading partners, eliminating interprovincial trade barriers, addressing slowing productivity, and managing the impacts of an aging population. The federal government’s upcoming budget will need to make bold and strategic decisions to navigate these headwinds and lay the groundwork for stronger economic growth.

To learn more about Canada’s economic outlooks for the long-term or the next five year’s, please visit The Conference Board of Canada’s Canadian Outlook.

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