Royal Bank of Canada (RBC) economists note Canada's GDP grew 0.1% in January, slower than December but above expectations, with goods-producing industries outperforming and services flat. They highlight an advance estimate of 0.2% for February and Q1 tracking between its 1.3% GDP forecast and the Bank of Canada's 1.8% projection. Policy rates are expected to stay on hold.

Modest GDP gains and steady policy outlook

"Canada's GDP growth increased by 0.1% in January, marking a deceleration from the 0.2% gain in December but slightly higher than Statistics Canada's advance estimate a month ago and our own expectations of flat performance. Goods-producing industries delivered upside surprises while services activity remained essentially flat and aligned with forecasts. Temporary factors influenced results, particularly in manufacturing, where auto plant shutdowns linked to longer than usual model changeovers weighed on output."

"Weak spots in January were concentrated in manufacturing, wholesale trade, and housing-related sectors. These pullbacks were offset by stronger energy production, construction sector output, and a modest rebound in mining excluding oil and gas. Retail volumes also rose, pointing to continued resilience in consumer spending at the start of the year."

"Looking ahead, advance GDP estimate suggests continued expansion in February (+0.2%) as temporary drags begin to fade. This aligns with early industry indicators. Manufacturing sales rebounded, supported by stronger transportation equipment and food production, while retail and wholesale metrics also point to positive momentum."

"On a quarterly basis, activity remains broadly consistent with our base case for moderate expansion following negative Q4 performance with the early monthly data tracking between our own 1.3% (annualized rate) Q1 GDP growth forecast and the Bank of Canada's 1.8% projection. With slowing population, per-capita improvement is expected to continue. For the Bank of Canada, we expect the policy rate to remain on hold, as officials await greater clarity on elevated oil prices due to the ongoing conflict in the Middle East and the impacts on inflation."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)