Data Flashes

The Bottom Line:

Canada’s GDP growth increased 0.2% in February, matching Statistics Canada’s advance estimate and our own expectations. Both goods-producing and services industries contributed to the gain as temporary disruptions in the auto sector in January started to unwind. Manufacturing and wholesale trade rebounded as auto production normalized following earlier model changeover shutdowns, while retail GDP advanced 0.2%, pointing to ongoing resilience in consumer spending.

Weak spots in February were concentrated in construction, the public sector, and an added decline in entertainment attributed to the two-week break in NHL games during the Olympics.

Looking ahead, the advance estimate for March GDP was “essentially unchanged.” Those early estimates are highly revision-prone, but early indicators for March suggest growth momentum has held steady into the end of Q1. Hours worked edged higher by 0.2%, while advance manufacturing sales rose 3.5% in March—in part reflecting higher petroleum prices, but also consistent with further recovery in auto production. Excluding petroleum and related products, advance wholesale sales also rose 1.3%.

On a quarterly basis, activity remains broadly consistent with our base case for moderate expansion, with Q1 GDP tracking slightly higher than our own forecast of 1.3% annualized GDP growth, as well as the Bank of Canada’s 1.5% projection in its April Monetary Policy Report. With population growth slowing, per-capita improvement is expected to continue. For the Bank of Canada, our base case remains unchanged: we expect the BoC to hold rates steady for the remainder of 2026, although the central bank signaled at its April meeting that it will be keeping a close eye on the evolution of underlying inflation (ex-energy) measures and broader economic growth implications from higher energy costs due to the ongoing conflict in the Middle East.

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The Details:

• Real GDP rose 0.2% in February, matching Statistics Canada’s advance estimate and aligning with our pre-release expectations. With advance indicators for March pointing to flat activity, Q1 performance is tracking at roughly a 1.7% annualized quarter-over-quarter rate.

• February’s headline expansion was supported by both goods-producing industries (+0.4%) and the service sector (+0.1%). Manufacturing rebounded as the key driver within goods production, recovering from shutdowns at several major Ontario auto plants in January due to model changeovers. Advance March manufacturing sales data, which showed a further 3.5% increase, suggest this momentum carried into quarter-end.

• Offsetting these gains, non-conventional oil and gas extraction fell 1.7% in February. However, conventional oil and gas extraction and mining activity continued to expand, lifting overall sector performance by 0.4%.

• Within services, wholesale trade posted a notable rebound (+0.9%), partially reversing the prior month’s weakness tied to auto production disruptions. Transportation and warehousing advanced 1.2% in February, more than reversing January’s decline, with broad-based strength across most sub-sectors.

• Retail GDP climbed 0.2%, marking a second consecutive monthly gain and underscoring continued consumer spending resilience early in the year. Our cardholder spending data, showed consumer spending remained resilient in March despite higher gas prices.

• Offsetting these positives, the public sector and arts, entertainment, and recreation industries posted declines. The latter coincided with the NHL’s Olympic break—a temporary factor likely to reverse in March.

• Housing-related activity remained a drag on expansion, consistent with ongoing declines in home resales, though the pace of deterioration eased from prior months.

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About the Author

Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.

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