Canada's economy unexpectedly stalled in February as manufacturing and production in other goods producing sectors shrank during the month. The real estate sector, which expanded 0.5 per cent, had its best one-month gain since 2015 as housing in Toronto soared.

Economists surveyed by Bloomberg predicted a 0.1 per cent gain in February, after a 0.6 per cent jump in January.

Key Points

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The recovery in goods production seen in recent months came to a halt in February, with those sectors recording a 0.3 per cent decline in February after three straight months of gains. Manufacturers recorded a 0.6 per cent decline in production, with the mining sector down 0.2 per cent.

On the upside, it's all about real estate. The runaway housing market in Toronto was a major contributor to economic activity in February, fueling a 5.3 per cent gain in output of real estate agents and brokers.

Other sectors benefiting from the hot housing market was the finance and insurance sector as a whole, which posted a 0.7 per cent gain. Construction was up 0.5 per cent during the month.

Gains in real estate and finance meanwhile are fueling demand for professional services like legal services. The professional, scientific and technical services component recorded a 0.5 per cent increase, led by a 2.9 per cent gain in legal services.

From a year earlier, GDP is up 2.5 per cent in February, the biggest gain since January 2015.

Big Picture

Canada's housing sector, particularly in Toronto, has become both the main driver of growth and one of the biggest sources of uncertainty amid concern the gains aren't sustainable.

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Even with the stalled growth in February, Canada is still on pace to have a strong first quarter, with annualized growth estimated to be just below 4 per cent. That would likely be the fastest in the Group of Seven.

At the same time, caution prevails. At a rate decision two weeks ago in Ottawa, Canada's central bank revised up growth projections for 2017, but cut them for 2018 and raised questions about the sustainability of the rebound and the country's long-term growth outlook.

–With assistance from Erik Hertzberg