Canadian GDP Corrects But Still Sees BoC On Hold For Rest Of the Year - Nomura

Monthly GDP decreased by 0.1% m-o-m in February, better than expectations, and follows a 0.6% m-o-m rise in January. This is the first monthly decline in five months.

The goods-producing side of the economy decreased 0.6% on the month. The contraction in the sector was broad-based with declines in manufacturing (-0.8% m-o-m), the mining, oil and gas sector (-0.8% m-o-m), utilities (-0.2%) and agriculture (-1.3% m-o-m). The only goods-producing sector that increased on the month was construction (+0.1% m-o-m).

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The services sector was flat month-on-month, mainly owing to considerably increased activity in retail trade (+1.4% m-o-m), a second consecutive month of strong growth. This was moderated by a decline in wholesale trade (-1.8% m-o-m). The rest of the service sector was more mixed but virtually flat.

Overall, the weakness looks partly driven by a reversal of the strength seen in January and, as such, is likely temporary. Similarly, we think the strength in retail is unlikely to last. However, the underlying momentum in the economy remains weak, suggesting that after a very strong start to the year, with Q1 growth likely to be above 3% q-o-q ar, growth should moderate in Q2. We still think the Bank of Canada will keep rates on hold for the rest of the year.