Canadian gross domestic product falls in unexpectedly weak February: StatsCan

The Canadian economy unexpectedly shrank in February due to a slowdown in the mining and manufacturing sectors, dampening expectations that the Bank of Canada will raise interest rates soon.

Statistics Canada reported that the national gross domestic product declined by 0.2 percent from January. Economists had been expecting growth of 0.2 percent.

Bank of Montreal deputy chief economist Doug Porter said the Canadian economy “disappointed in a big way in February.”

“Much of the weakness looks temporary, but it drives home the point that the underlying growth rate is sluggish at best,” Porter said.

“At the very least, the pullback in output will dampen some of the most hawkish views on the Bank of Canada and take some steam out of the Canadian dollar.”

Just two weeks ago, the central bank signalled that Canadians could soon face higher borrowing costs as it indicated it was getting ready to raise interest rates based on improved prospects for the global and Canadian economies.

“In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the two percent inflation target over the medium term,” the central bank said.

Statistics Canada said temporary closures in mining and other goods-producing industries contributed to the February decline in GDP.

“The result leaves the economy tracking well below the Bank of Canada’s 2.5 percent growth rate for the quarter,” observed CIBC World Markets chief economist Avery Shenfeld.

“Even with a likely rebound in March, the first quarter growth rate looks likely to be no better than two percent or less.”

Mining and oil and gas, combined, fell 1.6 percent in February following a small drop in January and a two percent increase in December.

With oil and gas excluded, mining declined seven percent in February, as output at potash and nickel mines was reduced by temporary shutdowns.

Oil and gas extraction decreased 0.9 percent. Crude petroleum production declined partly as a result of unplanned maintenance activities in Alberta. Natural gas production also fell.

Manufacturing declined 1.2 percent in February after increasing for five consecutive months. Non-durable goods manufacturing dropped 1.4 percent with reduced output of food, chemical and plastic and rubber products.

Durable goods production fell 0.9 percent as lower output in transportation equipment and primary metal manufacturing more than offset increases in non-metallic mineral products and machinery manufacturing.

Unusually warm weather meant lower demand for electricity and natural gas, pushing the output of utilities down 1.9 percent.

Construction rose 0.5 percent in February with increases in residential and non-residential building.

In service industries, gains in wholesale trade and in the finance and insurance sector outweighed declines in retail trade and in the transportation and warehousing sector.

While the wholesale trade rose 1.5 percent – a third consecutive monthly increase – the retail trade was down 0.4 percent. It was the second consecutive drop in retail.

New car dealers, who had a notable sales increase in January, saw sales slip last month. Excluding new car dealers, retail trade edged down 0.1 percent with lower sales at food and beverage stores, health and personal care stores, as well as electronics and appliance stores.

Those drops outweighed increases at building materials stores, clothing and general merchandise stores.

The public sector, education, health and public administration combined, was unchanged in February as gains in health services were offset by decreases in education services and public administration.