In February, Canada's Gross Domestic Product (GDP) rose by 0.2%, less than market expectations, and the economy likely expanded at an annual rate of 2.5% in the first quarter, based on data published on Tuesday.
Economists interviewed by Reuters had forecast GDP growth of 0.3% in the month. January growth was revised downwards to 0.5% from the 0.6% initially reported.
In preliminary estimates for March, Statistics Canada said GDP was likely unchanged from February due to increases in utilities as well as real estate, rentals, and various other items.
With the January adjustment and the March estimate, the estimated growth of 2.5% in the first quarter would be the fastest growth rate since the first quarter of 2023.
The monthly GDP report on Tuesday is based on Canadian industrial output while the first quarter figure, which will be released next month, is based on alternative calculations and could differ.
The Bank of Canada expects first-quarter growth of 2.8% after a 1% increase in the fourth quarter of 2023.
Economic growth stalled in the second half of last year and the recovery since then has eased pressure on the central bank to lower interest rates to avoid a collapse. Still, money markets see a more than 50% probability of a rate cut at the next bank announcement on June 5.
The Canadian dollar was slightly weaker after the GDP data was released, with the currency trading 0.44% lower at C$1.3719 per US dollar, or 72.89 US cents.
The Bank of Canada has raised its key interest rate to a 23-year high of 5% to lower inflation, and said earlier in April that a reduction in June was likely if the recent downward trend in inflation continued. Headline inflation stood at 2.9% in March, roughly in line with bank expectations.
GDP growth in February was driven by a second consecutive monthly increase in the services industry, according to Statscan. Transportation and storage increased by 1.4% in February, the largest monthly growth rate since January 2023, the agency reported.
The financial and insurance sectors expanded for the third month in a row in February, the agency reported, adding that hopes of an interest rate announcement led to higher-than-usual activity in the hedge fund and equity subsectors during the month.
Overall, Canada's goods-producing sector was unchanged on a monthly basis, while the services sector rose by 0.2%.
