Canada’s economy hit a speed bump in February, shrinking by 0.2% after a stronger start to the year. While that might not seem like a catastrophe on its own, it raises bigger questions about where we’re heading next. Was this just a weather-induced detour, or are we seeing early signs of a more serious economic slowdown?
Economists seem to be leaning toward the weather explanation. February saw brutal winter storms hammer parts of Central and Eastern Canada, disrupting transportation, slowing construction, and putting a freeze on activity in sectors like mining, oil and gas, and real estate. In fact, the goods-producing side of the economy dropped 0.6%, with mining, quarrying, and energy extraction taking the hardest hit — down a sharp 2.5%. That makes sense when you consider the logistical nightmare snowstorms bring to already challenging industries.
Transportation and warehousing also took a hit, falling 1.1%. That’s no surprise, given the commuter train cancellations and slower rail speeds triggered by storm after storm. Real estate, rental, and leasing also cooled off. In contrast, finance and insurance kept things from sliding even further, showing modest gains despite the broader dip.
But here’s the thing — while the weather definitely played a role, it’s hard to ignore the bigger forces at play. The global trade war, especially with the U.S., is starting to cast a longer shadow. Economists have been warning that the fallout from rising tariffs would eventually catch up to Canada. So while February may have been a bad-weather month, it could also be a warning sign of what’s coming.
Interestingly, manufacturing managed to buck the trend, rising 0.6% — its second straight monthly increase. That’s a glimmer of hope, likely tied to U.S. buyers rushing to secure goods ahead of expected tariff hikes. Machinery manufacturing surged 5.9%, suggesting there’s still some underlying demand. But that kind of bump may be short-lived if the trade war escalates further.
Looking ahead, early numbers from Statistics Canada suggest a modest 0.1% GDP gain in March, which could help balance out the quarter. If that holds, the first quarter would end with an annualized growth rate of 1.5%. Not terrible, but not inspiring either.
Economists like BMO’s Douglas Porter are already bracing for a rougher ride in Q2. The effects of tariffs are expected to deepen, and with the U.S. economy showing signs of strain too, there’s little reason for optimism in the short term. Oxford Economics even projects that Canada could tip into recession starting this quarter — a sobering prediction.
There’s some hope that the newly re-elected Liberal government’s fiscal stimulus could provide a cushion later this year. But as Michael Davenport of Oxford Economics points out, it may come too late to stop the slide.
So yes, February’s economic stumble may have been caused largely by bad weather. But ignoring the broader warning signs would be a mistake. The storm clouds may be clearing in the skies, but they’re gathering on the economic horizon.
