April 30, 2019 / 2:57 PM / 2 months ago

WRAPUP-Canadian economy unexpectedly shrinks in Feb, hit by bad weather

OTTAWA, April 30 (Reuters) - Canada’s sluggish economy unexpectedly shrank in February as bad weather hurt rail shipments of key commodities, Statistics Canada said on Tuesday, but analysts predicted a modest recovery in March.

Statscan said February gross domestic product fell by 0.1 percent. Analysts in a Reuters poll had expected no change from January, when the economy grew 0.3 percent.

The release will be closely analyzed by the Bank of Canada, which last week held interest rates steady but removed wording around the need for future hikes.

The central bank said any future rate moves, either increases or cuts, would be heavily data-dependent.

“February was a soft month for the economy, with weather playing a meaningful role. Look for some bounce back in March, as home sales picked up amid less oppressive weather,” said Benjamin Reitzes, a strategist at BMO Capital Markets.

“This report likely doesn’t change much for the Bank of Canada,” he said in a note to clients.

Statscan said the transportation and warehousing sector dropped by 1.6 percent, the biggest fall since June 2011, as cold weather, snowfall and a derailment hit rail transport and shipments of iron ore, potash and fuel oils and crude petroleum.

The mining, quarrying and oil and gas extraction sector fell by 1.6 percent, the sixth consecutive decline, as weaker international demand cut output of most kinds of metals. Potash and coal mining also posted drops.

The central bank, criticized by some market operators for recent forecasts that turned out to be too rosy, last week said first-quarter annualized GDP would be just 0.3 percent, before recovering later in the year.

“We know from the weekly railway carload figures that rail transportation rebounded sharply in March,” said Paul Ashworth, chief North American economist at Capital Economics.

“Even allowing for a bounce-back in March, it appears that first-quarter GDP growth was only 1 percent annualized,” he said in a note to clients.

Separately, Statscan said producer prices grew by 1.3 percent in March, the second consecutive month-on-month increase, on higher prices for energy and petroleum products.

Reporting by David Ljunggren; Editing by Bernadette Baum

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