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Real GDP Growth Shows Smaller Gain in February

Canadian Economics

By: Viktor Cicman

  • Real gross domestic product (GDP) increased 0.2 per cent in February, following a 0.5 per cent gain in January. A slower rate after last month’s post strike rebound. Just over half of industries saw growth, with 12 of 20 sectors posting gains. The advanced estimate indicates that real GDP was essentially unchanged in March.
  • Goods-producing industries saw essentially no change in February. Mining, quarrying and oil and gas extraction saw the largest increase among all sectors in February.After declining in January, the sector increased 2.5 per cent in February, expanding for the fourth time in five months. Impressively all types of production were up, led by a 4.4 per cent increase in oil and gas extraction (except oil sands).
  • The manufacturing sector declined 0.4 per cent in February, driven by declines in transportation equipment manufacturing and chemical products manufacturing. Motor vehicle and parts manufacturing was the largest contributor to the decline, as shutdowns for retooling activity continued to impact production.
  • Services-producing industries led the growth for a second month in a row, fueled by gains in transportation and warehousing. Transportation and warehousing increased 1.4 per cent in February, as six of nine subsectors were up. A rebound in rail transportation contributed the most to the increase in February 2024, rising by 5.5 per cent, as activity returned to normal following January’s cold snap in Western Canada which impacted rail networks. In addition, air transportation was up as carriers increased flights to Asia to reflect higher demand for travel leading up to the Lunar New Year.
  • The public sector, which has seen some of the most impressive growth since the pandemic, grew again in February, this time by 0.2 per cent. The increase follows the 1.9 per cent increase in January, attributed to the Quebec public sector workers’ strike. The elementary and secondary schools industry group grew 0.3 per cent in February, even as rotating strikes by the Saskatchewan Teachers’ Federation dampened some of the growth.
  • Finance and insurance increased 0.3 per cent in February, rising for a third consecutive month. Expectations regarding interest rate announcements led to higher-than-normal activity in the month, leading to a 1.4 per cent rise in financial investment services, funds, and other financial vehicles. Interestingly, mortgage activity also increased in the month, helping edge Credit intermediation and monetary authorities up 0.2 per cent.

Insights

For the second consecutive month, real GDP in Canada has shown a healthy rise, increasing by 0.2 per cent in February. While a rebound following recent strike activity has contributed to the early-year economic uplift, a broader assessment shows the economy is resilient, but hardly firing on all cylinders. Industry-wide capacity utilization has reached its lowest point since late 2020, and employment growth has stalled at the beginning of 2024. According to the latest Labour Force Survey, the unemployment rate has risen by 1.0 percentage points year-over-year, with the employment rate declining for the sixth consecutive month. In addition, consumer spending has slowed, particularly spending on major purchases. The good news is that consumer confidence may have bottomed out in December 2023, as the consumer outlook has risen each month this year.

All this bodes well for the Central Bank as it appears to be closing in on a “soft landing”—raising interest rates to curb inflation while avoiding a recession. Although the latest CPI data indicate a slight uptick in the headline inflation to 2.9 per cent year-over-year last month, core inflation measures, which filter out volatile prices, continued to decline in March. All signs point to the Bank of Canada being able to cut interest rates in the summer. However, a recent complication has emerged, as the US Federal Reserve may delay its anticipated summer rate cut as inflation and other economic indicators surpass expectations south of the border. This development has exerted downward pressure on the Canadian dollar (CAD), potentially driving up prices for imported goods. Coupled with strong government spending at all levels, the Central Bank will still need to do a wait and see approach. Nonetheless, we anticipate the next move for the Bank to be a rate cut, which should bolster consumer and business confidence, giving a lift to the economy by year’s end.

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

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