Canada’s financial system expanded 0.2 per cent in February, however progress appears to be like set to tail off in March to shut out the primary quarter, giving the Financial institution of Canada a cause to maintain rates of interest regular for now, economists say.
The month’s gross home product (GDP) progress matched analysts’ estimates and, coupled with Statistics Canada’s flash estimate for March, economists anticipate the financial system to broaden at an annualized charge that matches the Financial institution of Canada’s estimate of 1.5 per cent for the primary quarter after a contraction within the closing quarter of 2025.
Right here’s what economists assume the numbers imply for the financial system, the Financial institution of Canada and rates of interest.
‘Stall in March’: CIBC
“Development within the Canadian financial system seems to have reignited within the first quarter, though it’s removed from working on all cylinders, and March’s advance estimate factors to a stall once more on the finish of the quarter,” Andrew Grantham, an economist at CIBC Capital Markets, mentioned in a notice.
Manufacturing was the most important contributor to progress because the auto sector rebounded, however he mentioned ends in different areas of the financial system have been “decidedly blended,” with actual property exercise contracting for the fourth consecutive month and authorities administration down two months in a row, seemingly on account of cuts on the federal and provincial ranges.
Indicators of some client weak point additionally popped up on “broadly flat” retail spending and declining progress in meals and lodging.
CIBC estimates first-quarter annualized progress of 1.7 per cent, however mentioned “the obvious stall once more in March is a priority concerning momentum heading into the spring.”
Client spending is more likely to stay sluggish on account of the price of filling up on the pump and the roles market is gradual, indicating there stays loads of slack within the financial system, Grantham mentioned.
Which means core inflation ought to stay tame, regardless of larger power costs, giving the Financial institution of Canada trigger to keep up rates of interest at their present degree of two.25 per cent.
‘Tug-of-war’: Servus
“At present’s GDP report exhibits that financial exercise was strong going into the power shock attributable to the conflict with Iran,” Charles St-Arnaud, chief economist at Servus Credit score Union Ltd., mentioned in a notice.
His first-quarter GDP estimate is 1.7 per cent annualized, simply above the Financial institution of Canada’s forecast.
Manufacturing led the best way in February, rising 1.8 per cent month over month, the most important improve since January 2023, however exercise within the sector is 2.4 per cent decrease than it was in March 2025 as a result of results of United States tariffs.
The providers facet of the financial system grew 0.1 per cent month over month in February on will increase in transportation and warehousing, wholesale commerce and retail, whereas different areas comparable to leisure, schooling and public administration slumped.
St-Arnaud mentioned he expects the rise in oil costs will show a “internet adverse” for the financial system, driving up client and enterprise prices, however not funding within the oil sector within the near-term.
In consequence, the Financial institution of Canada “faces a tug-of-war on the route of financial coverage,” he mentioned.
The financial system may very well be dragged down by larger oil costs and commerce talks with the U.S. whereas larger power prices speed up inflation.
For now, he expects policymakers will proceed to carry rates of interest at their present degree.
“Nevertheless, it’s clear that the longer oil costs stay elevated, the extra seemingly the (Financial institution of Canada) might have to hike charges,” he mentioned.
‘Weak’: Nationwide Financial institution of Canada
“Total, the info launched this morning affirm that the Canadian financial system has held up in Q1 regardless of present headwinds,” Nationwide Financial institution of Canada economists Matthieu Arseneau and Alexandra Ducharme mentioned in a notice.
Nationwide Financial institution is looking for the financial system to develop 1.7 per cent within the first quarter, however its economists expressed warning concerning manufacturing’s “sturdy” rebound, arguing it “could be a mistake to rejoice within the sector’s energy” provided that the rebound was largely on account of auto vegetation powering up once more following manufacturing stoppages at first of the 12 months to vary fashions, retool and do upkeep.
The manufacturing sector has shrunk 3.1 per cent 12 months over 12 months and the auto sector, which incorporates motor automobiles and components, is down 6.8 per since from February 2025, the economists mentioned.
Excluding manufacturing, Canada’s financial system stagnated in February, they mentioned.
Regardless of the flat progress studying for March, 12 of the 19 sectors posted progress within the first quarter, Arseneau and Ducharme mentioned.
“The Canadian financial system stays weak on account of tariff uncertainty and now, the worldwide geopolitical state of affairs,” they mentioned.
Any profit to some sectors from larger oil costs will probably be offset by the hit to shoppers, who’re larger inflation.
Additionally they pointed to a drop in actual property values because the housing market continues to stoop and causes a “adverse wealth impact — one other headwind for shoppers.”
Nationwide Financial institution mentioned it expects the Financial institution of Canada’s subsequent transfer to be hikes, not cuts, although the timing is unclear.
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