The Canadian economy contracted in February after a strong start to the year, as activity in the manufacturing and natural resource sectors declined, suggesting that low energy prices continue to impede growth. Data from Statistics Canada on Friday showed gross domestic product fell 0.1 percent in the month, in line with forecasts, after increasing for four months in a row.
While economists had expected to see some give-back from January's unrevised 0.6 percent gain, they still expect relatively strong growth for the first quarter overall. "Even with that pullback in GDP this morning that was expected ... with March coming in flat you are still looking at 3 percent (first-quarter) GDP," said Richard Gilhooly, head of rates strategy at CIBC Capital Markets.
The persistent impact of cheap oil was reflected by February's 0.8 percent drop in the mining, quarrying and oil and gas extraction sector. Support activities for the industry retreated, while extraction of non-conventional oil dropped. Activity in the manufacturing sector also pulled back after three strong months. Overall, activity in goods-producing industries dropped by 0.6 percent. Still, weakness in the energy sector is likely to be offset by other exports over the longer-term said Craig Wright, chief economist at the Royal Bank of Canada. "Growth prospects for 2016 are off to a good start, and it looks like we'll see growth in around that 2-percent range," he said.