GDP rose by 0.1 per cent in January on a monthly basis after a 0.2 per cent gain in December, Statistics Canada said, pointing to a fragile start to the year.

An advance estimate, which is usually prone to change, showed the economy might expand by 0.2 per cent in February.

Analysts polled by Reuters had forecast no growth in January.

Canada’s economy has struggled in the wake of tariffs imposed by President Donald Trump on steel, autos, aluminum, lumber, copper and other products. The tariffs have dented Canadian manufacturing output.

CUSMA review looms

While exemptions under a free trade deal between the U.S., Mexico and Canada have protected other sectors, growth has been largely muted, with the Canadian economy contracting in the fourth quarter. An upcoming review of the Canada-U.S.-Mexico Agreement is considered a major uncertainty looming over the economy.

Goods-producing industries, which account for a quarter of GDP, grew by 0.2 per cent in January, matching the gain of the previous month.

Mining, quarrying, construction and oil and gas extraction were the biggest growth drivers, helping to offset a 1.4 per cent drop in manufacturing output in January, StatsCan said.

The construction sector expanded for the third month in a row in January. The drop in manufacturing, the second-biggest contributor to monthly GDP, wiped out all the growth seen in December.

Service industries such as real estate, finance and healthcare are the biggest contributors to the Canadian economy, but growth in this category stalled in January, the statistical agency said.

Activity in the wholesale trade, transportation and real estate sectors shrank in January, offsetting growth in some major economic contributors such as retail, educational services and finance and insurance.

Overall, nine of the 20 industrial sectors recorded growth in January, StatsCan said.

Growth, inflation worries

Economists have said growth could take a bigger hit in the coming months as high crude oil prices resulting from the Iran war curtail consumer spending and push up inflation.

The Bank of Canada also could be forced to raise interest rates.

“The global energy price shock from the U.S.-Iran conflict is unlikely to derail Canada’s economy, but it compounds existing headwinds from U.S. tariffs, trade policy uncertainty and a shrinking population,” Michael Davenport, a senior economist at Oxford Economics, wrote in a note.

“Developments in the Middle East and the outcome of the mid-year USMCA (CUSMA) review remain highly uncertain, but will be pivotal to Canada’s economic prospects this year,” he said.

Money markets expect no change in interest rates at the Bank of Canada’s next meeting in April, but are pricing in one increase of 25 basis points in the second half of the year.

The Canadian dollar was down 0.07 per cent at C$1.3932 to the U.S. dollar, or 71.78 U.S. cents. Yields on two-year Canadian government bonds were down 4.7 basis points at 2.668 per cent.

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The farm lender maintained its prediction that GDP growth would slow to around one per cent.

The effective blockade of the Strait of Hormuz, which has restricted the flow of oil and gas from the region, has pushed commodity prices to multi-year highs, FCC economist Krishen Rangasamy wrote in a March 18 report.

Pros and cons

The jump in prices could spell opportunity for Canada, Rangasamy said.

WHY IT MATTERS: Higher fuel and fertilizer prices for farmers today could be followed by higher borrowing costs in the future if core inflation persists.

“Given its high historical correlation with commodity prices, nominal GDP (which matters for government revenues) is likely to also perk up.”

If commodity prices stay high, the federal government and governments in resource-rich provinces such as Alberta or Newfoundland and Labrador could see higher revenues. That doesn’t mean governments will spend more, Rangasamy said, but there’s potential for a spending-related GDP boost.

However, fertilizer prices are among those surging due to the conflict which is weighing on the ag sector. Higher prices for fuel can also push up inflation and erode consumers’ buying power.

Trade war damages

Last year, Canada’s economy saw the worst performance since the 2020 pandemic recession — growing just 1.7 per cent, Rangasamy wrote. Export volumes fell on an annual basis for the first time in five years.

Government and consumption spending offset weaknesses in housing and business investment. However, based on a slumping household savings rate, consumers also dipped into savings to maintain lifestyles. This means Canadians have little cushion to absorb future shocks.

“With no end in sight to America’s trade war … look for trade and business investment to act as a drag on Canada’s economy again in 2026,” Rangasamy said.

Government and consumption spending may not provide as much of an offset this time. Rangasamy noted the government has telegraphed caution related to public spending. While ambitious public projects are in the works, that spending isn’t expected this year.

Interest rates and the loonie

If commodity prices stay high long enough, businesses may be forced to raise prices which could lead workers to demand higher wages.

“That could potentially trigger a wage-price spiral,” said Rangasamy.

The Bank of Canada could pre-emptively raise interest rates to prevent core inflation from taking off. However, he predicted the bank would stay in “pause mode” for several months.

FCC predicted the Canadian dollar would trade in the 72- to 74-U.S. cent range for most of the year, but acknowledged currency volatility could temporarily take it outside that range.

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Sales were down in three of the nine subsectors with the building materials category and furniture, electronics and appliances retailers category also reporting a drop in sales. Sales at fuel pumps helped offset some of the fall, StatsCan said.

In volume terms, retail sales were unchanged in December.

WHY IT MATTERS: Retail sales, which include domestic sales of cars, furniture, food and gasoline, are considered an early indicator of gross domestic product growth and contribute around 40 per cent to total consumer spending.

Core retail sales, which exclude gasoline stations and fuel vendors and the motor vehicle and parts dealers, were down 0.3 per cent in December.

The motor vehicles and parts dealers’ category, which accounts for over a fourth of total retail sales, fell by 1.6 per cent to $18.71 billion.

The second biggest contributor to retail sales is the food and beverage retailer category. Sales were unchanged in December in this subsector.

Building materials dropped by four per cent and the furniture and appliances category registered a 1.7 per cent month-on-month drop.

In January, sales were likely up 1.5 per cent but this number is likely to be updated next month, the agency said in a flash estimate.

— Reporting by Promit Mukherjee and Dale Smith

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Retail sales – closely watched by economists as they give an indication of GDP trends – had held up fairly strongly in the last two months, as concerns around the timing and magnitude of tariffs threatened by U.S. President Donald Trump brought forward purchases.

Why it matters: Retail sales are closely watched by economist as they give indications of GDP trends.

But sales weakened as the impact of tariffs started hitting consumers and the general outlook around the economy paled.

By contrast, an early or “flash” estimate showed retail sales likely grew 1.6 per cent in June, though this figure is prone to correction, statistics agency StatsCan said.

Analysts polled by Reuters had expected a drop during May, similar to what was reported, and barring autos and auto parts, which contribute almost 30 per cent to overall sales, they had predicted a drop of 0.3 per cent.

Sales excluding autos in May were down 0.2 per cent, StatsCan added.

The biggest drop was posted in the motor vehicles and parts dealers category, where sales contracted by 3.6 per cent, after two consecutive months of increases.

The drop was led by 4.6 per cent lower sales at new car dealers, which fell for the first time since February, it said, adding that in volume terms, retail sales decreased 1.4 per cent in May.

Declines in food and beverage sales

Another declining sector was food and beverages. This category, which contributes up to 18 per cent of total retail sales, saw purchases shrinking by 1.2 per cent, led by lower transactions at convenience stores and a decline in sales of beer, wine and liquor.

Economists noted the expected rise in sales in June which could indicate that GDP might improve in the second half of the year, but said trade tensions are likely to keep consumer spending under check.

“Unless a trade deal is reached to significantly reduce U.S.-Canada tariffs … we expect households will continue to tighten their purse strings as job losses and higher prices from tariffs squeeze disposable income,” said Michael Davenport, senior economist at Oxford Economics.

The Bank of Canada will announce its rate decision next week and is likely to keep borrowing costs on hold, but most economists expect the central bank will need to start easing rates again to support the economy.

The largest increase in retail sales in May came in building materials, and garden equipment and supplies, which posted an increase of 1.9 per cent following a decline of 0.3 per cent in April.

A survey of retailers by StatsCan on the impact of U.S. tariffs and Canada’s countermeasures showed that 32 per cent of retail businesses were impacted by the trade tensions in May, compared with 36 per cent in April.

The most common impacts in May were price increases, changes in demand for products, and increased expenses for raw materials, shipping or labor, it said, citing the survey.

— Reporting by Promit Mukherjee and Dale Smith

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A new report — dubbed a “landmark study” by the Potato Growers of Alberta — revealed the sector drove a total contribution of $2.87 billion to Canada’s economy in 2022.

It also notes the nationwide creation of 9,390 full-time-equivalent jobs, $662 million in employment income, a $1.3 billion contribution to GDP and $87 million in tax revenue to federal and provincial governments.

“We know that our industry has grown a lot in recent years but we had no accurate assessment of its overall impact on our economy,” said James Bareman, chair of the Potato Growers, in a webinar Tuesday.

“The industry could not have grown to this scale without the goodwill and collaboration of all parties involved: growers, processors, packers, the service sector, the scientific community and governments.”

The Alberta Potato Industry – Growing Success in 2022 was completed by Serecon and Nichols Applied Management — both Edmonton-based consultants with experience in developing economic impact assessments in the ag sphere.

The firms used world-standard industry methodology — further scrutinized and approved by an independent third-party university economist — to conduct the study.

“We wanted to ensure the study was accurate and the methodology was beyond reproach,” Potato Growers executive director Terence Hochstein wrote in a release.

“That’s why we went to great lengths to ensure it was conducted in a manner that would pass rigorous external scrutiny.”

Alberta is home to two broad regions of potato growers, Darren Haarsma of Serecon said: seed and table potatoes north of Calgary and processed potato products (chips, hash browns, et cetera) in the south.

Both subsectors are doing well, he said.

“Since 2017, there’s been marked increase in acres in Alberta across all types of production,” said Haarsma.

“A noteworthy point about the Alberta industry that makes it unique in comparison to other provinces is that the average production — thanks in large part to the extensive irrigation in Alberta — is about 30 per cent higher than the rest of Canada’s average.”

— Jeff Melchior is a reporter for Alberta Farmer in Edmonton.

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The price on carbon rose from $20 per tonne to $30 per tonne effective April 1.

The federal Liberal government is standing firm on its commitment to increase the cost by $10 per tonne each year until 2030.

Grain Growers of Canada says the move increases uncertainty for farmers as they head for the fields this spring.

“You know, for Canadians, this could mean higher food prices at the grocery store at a time when we can all afford it the least,” said executive director Erin Gowriluk, adding costs increases will depend on the commodity. “For some commodities, it may be at the end of the day consumers who pay more. But for our members, for the most part, these costs can’t be passed down.”

Some believed Ottawa would halt the scheduled tax increase due to the COVID-19 pandemic. Those expectations were arguably higher for the agriculture industry, as there were rumours stretching back to the end of 2019 that the Liberals were willing to make changes to offset the program’s impact on the sector.

Prime Minister Justin Trudeau ruled that out, repeating just days before the scheduled increase that the carbon pricing program includes rebates to those who pay into it.

“The price on pollution has been designed to put more money in household pockets, more money in the pockets of the middle class while we do the things that are necessary to fight pollution and protect our planet,” he said, telling reporters the need for the policy “remains even at a time of immediate crisis and pandemic.”

Gowriluk said her organization’s focus has been on mitigating the impact of COVID-19.

“There are issues right now that are more important and more pressing for our members than the carbon tax at this moment in time,” she said. “We felt we had gained some good momentum on this file.”

The GGC and other farm groups were supporting two pieces of proposed legislation — one in the Senate and one in the House of Commons — aimed at reducing the impact of carbon pricing on agriculture, prior to the suspension of Parliament as a result of COVID-19.

“We’re really pushing for ways to make sure that agriculture could remain competitive not only on the domestic market, but certainly on the on the global market,” said John Barlow, the Conservative critic in the Commons for agriculture and a proponent for one of the bills. “We want to see that expansion of the exemption to include natural gas and propane.”

Barlow said the federal government should at least take into account extra costs from carbon pricing in the context of the so-called “harvest from hell” and COVID-19, saying the pandemic offers a “perfect opportunity” for the Liberals to address the importance of success within agriculture.

“When you see all of these variables and these X-factors being piled on agriculture, you know, I don’t understand the logic,” he said, adding that raising taxes during a financial crisis is unwise.

“To me, it shows how out of touch and tone deaf they are.”

A recent report from the Parliamentary Budget Office (PBO), assuming social distancing and isolation measures remain in place for August, predicted real GDP to decline by 2.5 per cent in the first quarter of 2020, and 25 per cent in the second quarter.

The report also assumed members of the Organization of the Petroleum Exporting Countries (OPEC) and its partners won’t limit oil production and target nations — such as Canada — with balanced oil markets.

— D.C. Fraser reports for Glacier FarmMedia from Ottawa.

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The proposal must be voted on a second time to come into force. The ban would be lifted in October 2020 and the government says the move would add two to three percentage points to Ukraine’s gross domestic product (GDP) growth in its first year.

Supporters who want to scrap the moratorium say that doing so will unlock enormous investment potential in what is already one of the world’s top grain exporters.

But critics have concerns, including that it could allow local oligarchs to snap up land or that foreigners will muscle out poorer Ukrainians in purchasing plots.

As it stands, the proposed legislation stipulates that foreigners will not be able to buy land until 2024 though separately President Volodymyr Zelenskiy has said the issue should be put to a referendum, without specifying a date.

“Finally, we can move away from feudalism to real market relations as a fully fledged, developed country. Ukrainians have the right to freely dispose of their property!” Prime Minister Oleksiy Honcharuk said on Facebook after the vote.

The draft law sets a minimum starting price for farmland and limits the area that could be accumulated by one person or entity.

The economy ministry forecasts that one hectare of arable land could cost US$2,200, depending on the region.

Ukraine is the world’s 44th largest country but has the ninth biggest amount of arable land, with 32.5 million hectares (80.3 million acres). It operates around 43 million hectares of farmland compared with 178 million hectares in all European Union countries.

The moratorium on land sales means landholders typically lease their plots to agriculture businesses.

The World Bank has previously estimated that Ukraine could see its GDP growth rise by 1.5 percentage points yearly if the land sale ban is lifted, boost tax revenues and attract investment that would ultimately raise crop yields.

Wednesday’s vote drew mixed reactions. Hundreds of protesters tied to opposition parties gathered outside parliament, and brought a coffin with a dead pig inside in protest. Inside the chamber, some lawmakers temporarily blocked the podium.

Brussels praised the move, though it stressed the reform should be based on the rule of law, transparency and fairness.

“The EU supports the government’s plans to open the land market in Ukraine, a move that could unleash huge potential for Ukraine’s economy,” the European Union representative office in Ukraine said on Facebook.

— Pavel Polityuk is a Reuters commodities correspondent in Kiev.

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However, the Canadian Federation of Agriculture (CFA) and the National Farmers Union (NFU) have somewhat different takes as to what they see as paramount.

“It’s really important that we uphold the quality of our food products. The need for effective and enforced regulation from publicly-funded institutions such as the Canadian Grain Commission (CGC) that are trusted by our customers,” said Cam Goff, the NFU’s vice-president of policy.

Goff has a 4,000-acre family grain farm near Hanley, Sask.

He stated the federal government, along with Agriculture and Agri-Food Canada (AAFC), haven’t included farmers in the discussions when it comes to regulatory changes.

“Really good public institutions are being dismantled or defanged,” Goff said, noting there is a proposal to remove the CGC’s outward inspections, as the commission’s role and the Canada Grain Act are reviewed.

“That just spells bad news for farmers and Canadians in general,” he commented.

It’s something of the opposite message from the CFA, which wants to see less regulation, according to Chris van den Heuvel, its second vice-president.

Van den Heuvel has a 160-head mixed dairy and beef operation on Cape Breton Island near Port Hood, N.S.

“It’s changing the regulatory environment to make it easier to do business within Canada,” he said, adding there should be few red tape barriers to do business.

Van den Heuvel said the CFA began its Producing Prosperity campaign earlier this year, which has been based on food security, environmental stewardship and economic growth.

“We’re asking each of our political parties to have a look at our campaign. See that agriculture is not just important to rural Canada, but to all of Canada,” he said.

Apart from government, agriculture is the single largest employer in the country with more than 2.3 million people involved in the sector, according to the CFA.

Five years ago agriculture contributed $112 billion to Canada’s gross domestic product. Now that’s up to $142 billion, said van den Heuvel.

“The big thing is the recognition and investment in agriculture, as one of the powerhouse sectors in the Canadian economy,” he stated.

Canadians go to the polls Oct. 21.

— Glen Hallick writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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The province accounts for 12.5 per cent of the country’s agri-food GDP, and is in third spot nationally (after Ontario and Quebec).

The GDP for the province’s primary agriculture industry increased 1.9 per cent to $3.5 billion in 2017 while food-manufacturing industry GDP rose to $2.5 billion (up 3.4 per cent) and beverage manufacturing increased to $474.3 million (up 2.2 per cent).

Overall, Alberta’s economy in 2017 increased 4.9 per cent to $304.7 billion, as measured by real GDP, after declining for two years.

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Statistics Canada said it will begin tallying the production and sale of cannabis both before and after it is legalized in July 2018 to get a clear picture of its impact on the economy.

The domestic cannabis black market is estimated to be worth between $7 billion and $10 billion a year, with rates of youth use among the highest in the world. Canada will become the first G7 country to legalize recreational pot use next year.

Statistics Canada said that while it is not yet able to estimate how much illegal activity should be added to the official GDP numbers, research is under way.

The agency will use government health surveys to estimate consumption and how much households are spending on cannabis. The data will be incorporated into growth figures when Statistics Canada issues revisions in November 2019.

It also noted a “significant portion” of the activity associated with illegal cannabis may already be included in gross domestic product figures but is allocated to other categories.

Including illegal activity could lift economic growth figures but the impact is unlikely to be huge, said Nathan Janzen, senior economist at Royal Bank of Canada.

Other countries, including in Europe, have included illegal drug activity in their economic figures for a number of years, Statistics Canada said.

The statistics agency said it will also measure the medical cannabis industry, which is already legal in Canada.

— Reporting for Reuters by Leah Schnurr.

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