Canadian GDP Contracts, Real Estate Posts Largest Drop Since 2022
The brief surge that provided a temporary boost to the Canadian economy has come to an end, unveiling a more fragile economic foundation. Data from Statistics Canada indicates that the nation’s gross domestic product (GDP) experienced a downturn in February. This decline effectively wiped out half of the unexpected increase observed in January. The rising risk of recession in Canada can be attributed to the reduction in oil and gas extraction, coupled with a slowdown in the housing market. The latter is particularly concerning, as it recently marked its worst month in years in terms of GDP contribution.
The latest release shows a slowdown in Canadian economic output. Seasonally adjusted monthly GDP contracted by 0.2% in February, effectively reversing half of the exceptional growth recorded in January. A closer look reveals that goods-producing industries were the primary contributors to these declines, with a contraction of 0.6%. However, the services sector was not immune, facing a decrease of 0.1%. Notable industries such as mining, oil and gas, construction, and real estate played significant roles in driving these declines.
The mining, quarrying, and oil and gas extraction sectors exerted the most significant downward pressure. These industries experienced a 2.5% decline in February, mainly rolling back the rapid gains made in the preceding month. The decline was widespread across the sector, with oil and gas extraction seeing a decrease of 2.8% and oil sands extraction falling by 3.8%.
The Canadian real estate industry, closely linked to construction, is bearing a substantial impact. Construction faced a 0.5% contraction, marking the second-largest downward pressure in the February GDP data. This decline was primarily driven by weakening residential construction, which fell by 0.9%. In contrast, non-residential construction remained in positive territory, with expansions in public and industrial construction sectors.
The real estate and rental leasing sector, hereafter referred to as REARLS, exerted the fourth most significant downward pressure. The sector saw a 0.4% drop, the steepest since April 2022 when interest rates began to rise from record lows. This decline is primarily attributed to the reduction in fees and commissions from real estate transactions, such as commissions, brokerage fees, and revenues from services like property management, appraisals, and title transfers. A noteworthy 10.4% collapse in activity among real estate agents and brokers exerted the most substantial downward pressure.
Many industries experienced accelerated activity, effectively borrowing from future periods. The threat of tariffs accelerated manufacturing and sourcing activities, pulling February’s output into an earlier timeframe. Additionally, a consumer tax holiday provided additional motivation for households to increase their consumption earlier in the year.
These developments highlight two essential observations: the boosted activities in December and January were essentially borrowed from February and possibly later months. Although the economy appeared robust in those months, it isn’t as dire as February’s numbers might suggest. However, this slowdown occurs at a juncture when households are exhibiting signs of economic anxiety, which can be exacerbated by the prevailing news.
In summary, while the Canadian economy is experiencing a temporary downturn, understanding the factors contributing to these fluctuations is crucial. The elevated activity in previous months has been offset by a pullback, revealing underlying vulnerabilities. Nevertheless, the economy’s resilience and recovery prospects depend on how industries adapt to these pressures and the subsequent policy responses.
