The Canadian economy barely expanded in January, according to official data released on Tuesday, as gains in most goods-producing industries offset a pronounced decline in manufacturing output.
Statistics Canada reported monthly gross domestic product rose 0.1% in January, following a 0.2% increase in December. An advance estimate, which is subject to revision, suggested the economy could expand by 0.2% in February.
Analysts polled by Reuters had been expecting no growth in January. The January reading underscores a fragile start to the year for the Canadian economy.
Where growth came from
Goods-producing industries - which represent one quarter of GDP - recorded a 0.2% increase in January, the same rate of growth as the prior month. The main contributors within goods production were mining, quarrying, construction and oil and gas extraction.
The construction sector expanded for the third consecutive month in January, helping offset weakness elsewhere in the goods category.
Those gains were, however, counterbalanced by a steep 1.4% decline in manufacturing output in January. Manufacturing is the second-largest monthly contributor to GDP and its fall erased all of the growth recorded in December.
Services and sector details
Services industries - the largest component of the economy and including real estate, finance and healthcare - saw growth stall in January. Within services, wholesale trade, transportation and real estate contracted during the month.
These contractions offset expansions in other service areas such as retail, educational services and finance and insurance. Overall, Statistics Canada reported that nine of the 20 industrial sectors recorded growth in January.
Policy and market implications
Economists referenced in the data release noted the potential for growth to weaken further in coming months if elevated crude oil prices - attributed in the report to the Iran war - damp consumer spending and push inflation higher. That mix could also pressure the Bank of Canada to raise interest rates even amid economic softness.
Money markets were pricing in no change at the Bank of Canada's upcoming meeting in April, but were assigning probability to one rate increase of 25 basis points in the second half of the year.
On financial markets, the Canadian dollar was quoted at C$1.3932 to the U.S. dollar, down 0.07%, equivalent to 71.78 U.S. cents. Yields on two-year government bonds fell 4.7 basis points to 2.668%.
Advance estimate caveat
The advance estimate showing a possible 0.2% expansion in February is preliminary and typically subject to revision. The January outturn and the forward-looking estimate together point to subdued momentum at the start of the year.
Overall, the data portray an economy supported by resource and construction activity but constrained by a contracting manufacturing sector and a services complex that has lost momentum.