Canadian GDP Contracts, Real Estate Posts Largest Drop Since 2022

Canada's economy took a hit in February 2025, with the gross domestic product (GDP) shrinking by 0.2%. This downturn erased half of January's unexpected growth and marked the first monthly contraction since November 2024. The decline was primarily driven by reduced activities in the mining, oil and gas, construction, and real estate sectors.

The goods-producing industries experienced a significant setback, contracting by 0.6%. Notably, the mining, quarrying, and oil and gas extraction sector declined by 2.5%, with oil sands extraction dropping 3.8%. Adverse weather conditions, including heavy snowstorms, contributed to these declines.

The real estate and rental leasing sector saw a 0.4% decrease, the steepest since April 2022. This was largely due to a 10.4% drop in real estate agent and broker activities, reflecting a slowdown in property transactions. Residential construction also fell by 0.9%, while non-residential construction remained stable.

Analysts suggest that some economic activities were pulled forward into earlier months due to tariff threats and a consumer tax holiday, leading to a temporary boost in December and January. This borrowing from future output may have contributed to the February slowdown.

The contraction has raised concerns about Canada's economic momentum, especially amid ongoing U.S. tariffs on key sectors like steel and automotive. Financial markets have increased the probability of a rate cut by the Bank of Canada in June to slightly above 50%.

Looking ahead, Statistics Canada anticipates modest growth of 0.1% in March, with an annualized GDP increase of 1.5% for the first quarter. However, the economy's reliance on sectors vulnerable to external shocks underscores the need for cautious optimism.