Treasury
Canada's Q1 Economy Holding on in Q1 Despite Headwinds, National Bank Says
Canada's economy grew by 0.2% month over month in February, a result in line with Statistics Canada's preliminary estimate released a month earlier, said National Bank of Canada.This strong performance was driven by a robust rebound in the manufacturing sector, which posted a 1.8% month-over-month increase following a 1.3% decline in January.It would be a mistake to rejoice in the sector's strength, as this surge is primarily attributable to a return to normal operations at auto assembly plants following a January marked by production stoppages due to changes in production models, retooling and maintenance, noted the bank.Despite February's rebound, activity in the sector remains 3.1% below its level a year ago. The sector continues to be plagued by U.S. tariffs and uncertainty surrounding the renewal of the CUSMA trade deal, the bank stated. The bank recalled that the 50% tariffs on steel, aluminum, and copper, which previously applied only to component costs, were replaced by a 25% tariff applied to the total product price at the beginning of April, as such significantly impacting the competitiveness of certain products.Excluding the manufacturing sector, the Canadian economy stagnated in February.Overall, the data released on Thursday confirms that the Canadian economy has held up in Q1 despite current headwinds, added the bank. Despite the expected stagnation of the economy in March, GDP by industry shows growth of 1.7% on an annualized basis in Q1.Not less than 12 out of 19 sectors posted growth during the quarter. Under normal circumstances, such growth would be considered decent, but it comes at a time when the population is shrinking, which is holding back the economy's potential GDP, according to National Bank.Consequently, GDP per capita is on track to experience its strongest growth in 15 quarters, or 2.1% annualized. This is good news for an economy with excess supply and an unemployment rate above its full-employment level. Unfortunately, past performance is no guarantee of future results regarding this renewed growth.The Canadian economy remains vulnerable due to tariff uncertainty and the global geopolitical situation, now, said the bank. While higher commodity prices could benefit some industries, the potential upside should be offset by the negative impact on consumers, who are facing a jump in inflation.Weak real estate activity in major urban centers across the country (Toronto, Vancouver, among others) is causing a negative wealth effect, which represents another headwind for consumers.
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