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(Bloomberg) -- Canada’s economic growth came to a halt after a solid start to the year as tariff threats mounted.
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Advance data showed gross domestic product was unchanged in February, Statistics Canada said Friday. That followed a robust 0.4% expansion in January, the strongest monthly pace since April last year and beating the median estimate of economists.
Assuming there’s also no growth in March, the industry-based numbers point to annualized 2.1% growth in the first quarter, versus the Bank of Canada’s forecast of 2% and the 1.6% expected by economists in a Bloomberg survey. That would be a deceleration from a fourth-quarter gain of 2.6%.
Waning momentum due to tariff threats, however, does not necessarily mean an immediate rate cut from the Bank of Canada at its next decision on April 16. Policymakers said they need to set policy rate that works for different outcomes, and weigh downward pressures on inflation from a weaker economy against upward pressures from higher costs.
US President Donald Trump’s administration has already imposed tariffs on some products the US buys from Canada, and further levies expected in coming weeks — if sustained — will likely plunge the economy into recession. With Canada’s retaliatory tariffs raising prices for imports, there’s risk that inflation may rise above the bank’s upper target range of 3%.
Bank of Canada Governor Tiff Macklem said last week that the risk of higher inflation from a trade war limits the bank’s ability to cut rates to boost growth. He said that policymakers would focus on ensuring Canadian businesses and households expect price gains to stabilize over time despites and look beyond short-term price hikes.
In February, growth in the manufacturing and finance sectors was offset by declines in real estate, oil and gas extraction and retail trade. Last week, the statistics agency’s preliminary retail data for February also showed consumers pared back spending for a second straight month.
While pervasive uncertainty around tariffs appeared to suppress business and household spending last month, it spurred a boom in activity in January, with exporters, importers and factories ramping up their shipments and production to front-run the steep duties.
“Solid start to the year, but that’s cold comfort with tariffs now in place and poised to worsen next week,” Benjamin Reitzes, rates and macro strategist at Bank of Montreal, said in an email. Trump plans sweeping so-called reciprocal tariffs on April 2 and 25% import taxes on automobiles on April 3.