Canada’s economy stalls in February

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Canada’s economy continued its strong momentum in the new year, growing by 0.4 per cent in January, up from 0.3 per cent in December, but a flash estimate shows that momentum fading in February, Statistics Canada said Friday.

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The monthly growth in gross domestic product in January marks the strongest pace since April 2024, with goods-producing industries like manufacturing, oil and gas extraction and mining posting the largest monthly gains.

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However, an early estimate shows momentum faded in February, with Canadian growth coming in flat during the month. Increases in manufacturing, finance and insurance were offset by declines in retail trade, oil and gas extraction and the real estate sector.

During the March rate announcement, Bank of Canada governor Tiff Macklem said the central bank expects economic growth to slow in the first quarter of 2025, as the trade conflict weighs on sentiment and activity, brought on by a drop in business and consumer confidence.

Past January, “the outlook is turbulent. There are clear downside risks to Canada’s economy, especially as the threat of widespread tariffs seems imminent come April 2,” said Marc Ercolao, economist with Toronto-Dominion Bank, in a note.

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In January, the manufacturing sector rose 0.8 per cent, utilities were up 2.7 per cent and construction up 0.7 per cent, with residential building reaching its highest level since November 2023. The oil and gas extraction sector grew by 2.6 per cent, driven by increased activity in Alberta’s oilsands.

The motor vehicle and parts wholesaler-distributors sector expanded 4.5 per cent during the month, reaching its highest level since February 2020, as exports of autos increased.

January’s oversized gains in goods-producing sectors suggest “there was some front-running ahead of the tariffs,” said David Rosenberg, founder and president of Rosenberg Research Inc.

But the bump is history now, with real GDP expected to “contract sharply” in the second quarter, the economist said in a note to clients.

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“A storm is coming to the Canadian economy, and the Canadian dollar is a strong sell,” he said.

The Bank of Canada next decides its interest rate on April 16 and whether it cuts or holds will largely depend on the reciprocal tariffs U.S. President Donald Trump announces on April 2.

Trump has already imposed tariffs on steel and aluminum, and this week announced a 25-per-cent tariff on all foreign-made autos, set to take effect next week.

Bank of Montreal chief economist Douglas Porter said the strong start to the year is “cold comfort” in the face of tariff threats.

“Still, the strong underpinning for growth will reinforce the Bank of Canada’s newfound lean to the sidelines, barring a material deterioration in the outlook following next week’s so-called reciprocal tariff announcements,” he said in a note.

• Email: jgowling@postmedia.com

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