Canadian economy contracts 0.1% in February: Statistics Canada

Railway oil cars

Weakness in the mining sector and troubles for the transportation sector caused by winter weather and a derailment that cut a key rail line weighed on the economy in February.

Statistics Canada said Tuesday that domestic product contracted 0.1 per cent in February as both goods-producing and services-producing industries declined.

The pullback followed growth in January of 0.3 per cent.

Economists had expected no change in gross domestic product for February, according to Thomson Reuters Eikon.

"There apparently wasn't much love for the Canadian economy in February, with GDP posting a surprising decline as adverse weather held back output," CIBC economist Royce Mendes wrote in a report.

The weaker-than-expected reading for the economy in February followed the Bank of Canada's move to downgrade its outlook for economic growth.

The central bank projected growth at an annualized rate of just 0.3 per cent in the first three months of 2019 compared with an earlier forecast for 0.8 per cent.

The Bank of Canada also predicted growth in real gross domestic product of 1.2 per cent for 2019, down from its January forecast of 1.7 per cent.

Statistics Canada said the mining, quarrying and oil and gas extraction sector fell 1.6 per cent overall, with mining and quarrying down 4.4 per cent and oil and gas extraction slipping 0.6 per cent.

Meanwhile, transportation and warehousing fell 1.6 per cent, due to a 10.8 per cent drop in rail transportation as cold weather, heavy snowfalls and a derailment in B.C. that closed an important rail line through the Canadian Rockies hurt the sector.

However, the cold weather helped boost the utilities sector which gained 1.5 per cent in February as frigid temperatures contributed to higher demand for electric power generation, transmission and distribution and natural gas distribution.

"It looks like we may be in the soft patch for a bit, particularly as trade and transportation sector data suggests little destocking in the energy sector despite production curtailments," TD Bank senior economist Brian DePratto wrote.

"This suggests a risk of another subpar performance in the second quarter. The good news, however, is that the underlying economic signals remain generally healthy, with construction activity rising for a second month, and some modest signs of life in investment."