April 30, 2015 / 12:47 PM / 4 years ago

Canada economy stalls in February, but stronger than foreseen

OTTAWA (Reuters) - The Canadian economy stalled in February as a pickup in the retail sector was offset by a decline in manufacturing and a steep drop in support activity for the mining and energy sectors, data showed on Thursday.

Bombardier employees install parts on a Global 6000 aircraft at the manufacturing facilities in Toronto May 29, 2012. REUTERS/Mike Cassese

The country’s gross domestic product was unchanged in February from the month before, Statistics Canada said, though that topped economists’ expectations for a decline of 0.1 percent. January was revised down to a decline of 0.2 percent.

Economists are watching to see how the economy copes with the drop in the price of oil, a major export for Canada. The Bank of Canada cut interest rates in January to protect against the price shock and expects economic growth in the first quarter to be weak before picking up later this year.

The GDP report will likely keep the bank from making policy moves for now, analysts said. Assuming a small increase in March, first-quarter growth is on track for an annualized gain of 0.2 percent, said David Tulk, chief Canada macro strategist at TD Securities.

“The theme of weakness in the first quarter ... is well understood by the bank and the market, leaving the bounce in the second quarter and beyond as the greater source of uncertainty,” Tulk said.

Oil and gas extraction edged up 0.1 percent in February from January, but support activity for the mining and energy sectors tumbled 15.4 percent on a drop in rigging and drilling services. That was the biggest decline since March 2009.

Manufacturing activity fell 0.8 percent, hurt by a decrease in durable-goods manufacturing. Overall, the goods-producing sector declined 0.2 percent.

The service sector fared better, rising 0.1 percent. Retail trade climbed 1.5 percent for its first increase in three months. Gains were broad, including an increase in sales at merchandise stores and at motor-vehicle and parts dealers.

Analysts said harsh winter weather played a hand in February’s economic sluggishness.

Doug Porter, chief economist at BMO Capital Markets, said the drop in manufacturing was due to a decline in auto assembly due to plant retooling.

“The winter months were no treat for Canada’s economy, but it now looks like GDP managed to hold roughly steady through a rough patch for oil and gas and the auto sectors,” he said.

Editing by Peter Galloway

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