Canadian economic growth shrinks sequentially in February

The Canadian economic activity shrank in February. On a sequential basis, the Canadian economic growth contracted 0.1 percent, coming in slightly below market expectations of no change. The fall was broad based, with just 11 of the 20 major sector groupings in expansionary territory.

The mining, quarrying and oil and gas sector were the biggest drag on growth, driven lower by mining that dropped 4.4 percent. Oil and gas sector output dropped again in February, shrinking 0.6 percent. The ongoing challenges of this sector, along with cold weather, sent activity in transportation and warehousing lower driven greatly by a 10.8 percent fall in rail transportation.

Weather related effects seen to have impacted real estate, with activity down 0.2 percent. Nevertheless, this fall was countered by a 1.5 percent rise in utilities output also attributable to cold weather. Interestingly, the construction industry saw a second straight monthly rise in spite of the weather, driven by residential construction.

It appears that the Canadian economy might be in the soft patch for some time, especially as trade and transportation sector data implies little destocking in the energy sector despite production curtailments, noted TD Economics in a research report. This implies a risk of another subpar performance in the second quarter. Nevertheless, the underlying economic signals continue to be generally healthy, with construction activity growing for the second month, and some modest signs of life in investment.

“With the February GDP data in hand, we track first quarter growth at 0.6 percent (q/q, annualized). This is only moderately higher than the Bank of Canada's view, and, as mentioned, Q2 may be held back a bit as well. This suggests that the Bank's conservative near-term forecast (see commentary), is likely to be more or less realized”, added TD Economics.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at -40.6794 while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -77.1379 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex