The Canadian economy’s temporary boost has faded, revealing a weaker foundation. Statistics Canada (Stat Can) data shows the country’s gross domestic product (GDP) slipped in February. The drop erased half of January’s unexpected surge. Behind Canada’s rising recession risk was declining oil & gas extraction, and the Canadian housing market slowdown. The latter of the two is of particular concern, as its GDP contribution just recorded the worst month in years.
Canadian GDP Drops 0.2% Led By Declines In Goods,
Canadian economic output slowed in the latest release. Seasonally adjusted monthly GDP contracted 0.2% in February, reversing half of the blow out reported in January. Goods producing industries led the declines (-0.6%), but services also took a hit (-0.1%). The biggest contributors to the declines included the country’s mining, oil & gas, construction, and real estate.
Canadian Mining, Oil & Gas Experience A Sharp Pullback
Mining, quarrying, and oil and gas extraction provided the largest downward pressure. The industry slipped 2.5% in February, mostly just rolling back the breakneck gains a month prior. The declines were broad across the category, with oil & gas (-2.8%), and oil sands extraction (-3.8%) applying most of that pressure.
Canadian Real Estate & Construction Log An Exceptionally Bad Month
The Canadian real estate industry is taking a particularly large hit, as well the closely related construction industry. Construction (-0.5%) is the second-largest downward pressure in the February GDP data. Its decline was driven primarily by weakening residential construction (-0.9%). Non-residential remained in growth territory, with public and industrial construction expanding.
The real estate and rental leasing sector, which we’re going to call REARLS from now on, provided the fourth largest downward pressure. The 0.4% drop was the steepest since April 2022, when interest rates made its first climb from record lows. This number is primarily based on fees/commissions from real estate transactions (i.e. commissions, brokerage fees, etc.), and revenue from services (i.e. property management, appraisals, title transfers, etc.). A 10.4% collapse in real estate agent/broker activity provided the lion’s share of downward pressure.
Many industries saw activity pulled forward, borrowing from the current window. The threats of tariffs meant manufacturing and sourcing likely accelerated activity ahead, pulling February output into an earlier window. A consumer tax holiday also helped to contribute, as households had motivation to consume earlier in the year.
This leaves two important observations—the boosted activity in December and January were borrowed from February, and possibly beyond. The economy wasn’t nearly as strong as it seemed in those months, but it’s not quite as bad as it seems in February. However, the slowdown comes at a time when households are displaying economic anxiety, which can be amplified by the news.
Will the Bank of Canada ease rates even further to mitigate some of the pressure? Share your thoughts below.