Canada’s real gross domestic product fell 0.2% in February, pulled down by declines in mining, oil and gas, construction, and real estate, Statistics Canada reported.

February’s drop partly offsets January’s 0.4% gain, and the agency estimates GDP grew 0.1% in March, with Q1 2025 expected to post a 0.4% gain overall.

“The latest monthly GDP readings are a bit of a wash, with February's result even softer than expected—and the weakest monthly reading in more than two years—but March a bit better than expected,” BMO Chief Economist Doug Porter wrote in a note to clients, adding that much of February’s decline was weather-related, and not a sign the economy was buckling due to Trump’s tariffs.

“The real drama now begins, with the tariffs much more of an issue in Q2, and the U.S. economy also now facing much heavier weather of its own. We would be surprised if GDP manages to grow in Q2.” However, with a better-than-expected hand-off in March, Porter says BMO’s forecast for a 2.5% contraction in Q2 GDP “may well be too pessimistic.”

Royce Mendes, managing director and head of macro strategy at Desjardins, said he’s tracking Q1 growth of 1.7% which is roughly in line with the latest Bank of Canada projection, though “it’s clear the momentum is waning after a hot start to the year.” Mendes says he continues to see the Bank of Canada policy makers resuming their rate cutting cycle in June.

The Bank of Canada will be watching the April job numbers, due Friday, and the next round of GDP figures, expected at the end of May, to determine its next move. The central bank’s next interest rate decision will be on Wednesday, June 4.

Statistics Canada said the real estate sector dropped 0.4% in February, its biggest slide since April 2022 as home resale activity weakened for a third straight month. Goods-producing industries shrank 0.6%, with oil and gas extraction leading the downturn after two months of growth, the agency said. Oil sands production dropped 3.8%, the steepest since January 2024, due in part to poor weather and a tanker-terminal collision off Newfoundland.

Canada’s manufacturing ties to the U.S. remain strong

The report also underscores Canada's economic reliance on U.S. demand, particularly in manufacturing. “The manufacturing sector is one of the industrial sectors with the highest exposure to the US market, relying on demand from the United States for 42% of its output and 41% of its workforce in 2023,” according to Statistics Canada.

Transportation equipment manufacturing, especially, remains heavily dependent: “52% of its output [is] attributed to direct exports to the United States and 61% of its output attributed to total demand from the United States.” In terms of jobs, 63% of employment in this sector is linked to U.S. demand.

Motor vehicle manufacturing was even more tightly tied to the U.S., with “82% of its output and 81% of the industry's jobs” dependent on American markets. The motor vehicle parts industry followed closely behind, with “77% of its output and 76% of the industry's jobs” linked to U.S. demand — including both direct exports and parts embedded in other export products.

These figures come from the Value-Added in Exports database, which measures “the direct and indirect impact of exports on gross domestic product (GDP) and jobs by industry.” It shows how deeply integrated Canadian industry is with U.S. supply chains, particularly in sectors like steel, auto manufacturing, and aerospace.