By Ismail Shakil
OTTAWA (Reuters) - Canada's gross domestic product increased by 0.2% in February, less than market expectations, and the economy likely expanded at a 2.5% annualized rate in the first quarter, data showed on Tuesday.
Analysts polled by Reuters had forecast a 0.3% GDP growth in the month. January's growth was downwardly revised to 0.5% from 0.6% reported initially.
In a preliminary estimate for March, Statistics Canada said GDP was likely unchanged from February as increases in utilities as well as real estate, rental and leasing were offset by decreases in manufacturing and retail trade.
With the January revision and the March estimate, the 2.5% estimated growth in the first quarter would be the fastest growth rate since the first quarter on 2023.
Tuesday's monthly GDP report is based on Canada's industrial output while quarterly figures, which will be released next month, are based on an alternate calculation and can differ.
The Bank of Canada expects growth in the first quarter to be 2.8% after the 1% increase in the fourth quarter of 2023.
Economic growth stalled in the second half of last year and the rebound since has eased pressure on the central bank to lower interest rates to avoid a downturn. Still, money markets see a more-than 50% chance of a rate cut at the bank's next announcement on June 5, while a cut in July is fully priced in.
The Canadian dollar slightly weakened after the GDP data, with the local currency trading 0.44% lower at C$1.3719 per dollar, or 72.89 U.S. cents.
The BoC has raised its key policy rate to a 23-year high of 5% to bring down inflation, and said earlier in April that a cut in June was possible if a recent cooling trend in inflation is sustained. Headline inflation came in at 2.9% in March, roughly in line with the bank's expectations.
GDP growth in February was driven by a second consecutive monthly rise in the services-producing industries, Statscan said. Transportation and warehousing increased 1.4% in February, the largest monthly growth rate since January 2023, the agency said.
The finance and insurance sector grew for a third consecutive month in February, the agency said, adding that expectations regarding interest rate announcements led to higher-than-normal activity in the mutual fund and equity subsector in the month.
Overall, Canada's goods-producing sector was unchanged on a month-over-month basis, while the services sector posted a 0.2% increase.