Canada GDP Stalls in February -- 2nd Update

By Paul Vieira Features Dow Jones Newswires

Canadian economic output stalled in February, as a drop in the factory sector offset robust gains in real estate and financial services.

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The data ended a streak of three straight months of solid growth, and could signal the beginning of a slowdown as the Bank of Canada predicted. Even amid a string of better-than-expected indicators on employment, factory sales and retail trade, Canada's central bank said the economy wasn't yet firing on all cylinders.

Canada's gross domestic product, or the broadest measure of goods and services produced in an economy, was unchanged in February from the previous month, holding at 1.71 trillion Canadian dollars ($1.26 trillion), Statistics Canada said Friday. Market expectations were for a 0.1% month-over-month gain, according to economists at Royal Bank of Canada.

February's performance comes after a 0.6% surge in the previous month, and 2.6% annualized growth in the fourth quarter. On a year-over-year basis, GDP rose 2.5% in February.

"After the exciting growth figures of recent months, it was perhaps inevitable that the Canadian economy would take a slight breather," said Brian DePratto, an economist at TD Bank.

Meanwhile, U.S. data released at the same time indicated the American economy rose 0.7% in the first quarter at a seasonally adjusted annual rate, or the slowest pace in three years.

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Even with February's flat reading, economists still expect Canadian GDP to expand by over 3% annualized in the first quarter.

The Bank of Canada said earlier this month that recent momentum was due to temporary factors, and expected growth to slow starting in the middle of this year.

Furthermore, uncertainty over U.S. trade policy -- which escalated in recent days -- is bound to provide cautious Canadian firms with further reason to curb back investment and hiring plans. The Bank of Canada has said the risk of U.S. protectionism represented a significant threat to the Canadian outlook.

"If momentum is waning, then combined with falling core inflation readings and ongoing trade policy uncertainty, it counsels a patient stance on monetary policy for a long time yet," Derek Holt, economist at Bank of Nova Scotia, said in a note to clients.

President Donald Trump said this week he considered issuing a formal withdrawal from the North American Free Trade Agreement, but decided instead to proceed with renegotiations after speaking to leaders from Canada and Mexico. Mr. Trump also backed a new 20% tariff on Canadian lumber imports, and has warned of repercussions for Canada due to its protected dairy sector.

Canada's GDP report for February said output in the manufacturing sector fell 0.6%, on declines in transportation equipment, wood products, and plastic and rubber. Also, mining fell 3.6% in the month, led by decreased copper and nickel extraction.

Providing a lift for the economy in the month was the real estate component, which grew 0.5% in February. The data agency attributed strength to "notable gains" in activity around the Toronto region. Authorities in the province of Ontario introduced this month measures to curb frothiness in the Toronto market, in an effort to rein in speculators and reduce the influence of foreigners on price gains.

The financial-services sector rose 0.7% in the month, as investors rushed to meet a deadline related to Canadian tax-protected retirement accounts, or the equivalent of the 401(k).

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

April 28, 2017 09:56 ET (13:56 GMT)