The Canadian economy expanded by 0.1% month/month (m/m) in February, below Statistics Canada’s flash estimate of 0.3% m/m. The flash estimate showed a -0.1% m/m change for March. January’s GDP was revised up a tenth of a percent to 0.6% m/m.
February’s increase in activity was roughly balanced, with output expanding in 12 of the 20 industries. Both the service-producing and goods producing sectors rose by 0.1% m/m.
The gain on the goods side was narrowly led by the construction sector (+0.3% m/m), as it advanced for a fifth straight month. Residential building construction was the top contributor for the month (+0.3% m/m). Agricultural activity contracted for a fifth straight month (-0.9% m/m).
On the services side, healthy gains in education services (+0.5% m/m), professional/scientific/tech. (+0.6% m/m), and information & culture (+0.4% m/m), were offset by a decline in wholesale trade (-1.3% m/m). Losses in the sector were focused in the motor vehicles parts and accessories subsector, declining 4.4% m/m, its lowest level since June 2020.
Key Implications
Canadian growth continues to exhibit strength. With today’s print and the flash estimate for March, first quarter GDP is tracking at an annualized rate of 2.5%. This is broadly aligned with the Bank of Canada’s most recent 2.3% estimate for Q1 growth.
Today’s GDP numbers corroborate the BoC’s recent guidance that monetary policy may need to be ‘restrictive for longer’. This doesn’t necessarily mean additional rate hikes are on the table, but it does provide further evidence that the start of rate cuts are less likely to occur in 2023. Our view is that the BoC will hold the policy rate into 2024 as lagged effects of interest rate hikes still need time to work their way through the economy.
The federal public service strike, affecting some 100,000 workers, enters into its tenth day and negotiations are still ongoing. By loose estimation, a strike of this duration could shave 0.2 percentage points (ppts) off of April’s GDP. However, as workers come back on the job, growth in subsequent months would be boosted.
