Today’s Statistics Canada report showing gross domestic product unchanged in February drives home the point that Canadian rates are going to stay low for quite some time yet, analysts say.

Canadian real GDP was unchanged in February, way below the consensus call of a 0.4% rise. Rubbing salt into the wound, said Nesbitt Burns Inc. chief economist Sherry Cooper, the prior month was revised down to a fall of 0.2% from the initial estimate of -0.1%. GDP is now up only 1.6% from a year ago.

“Without a doubt, this report is a shocker, and not of the pleasant variety,” Cooper said in a report. “The Bank of Canada will get the full Q1 GDP report on May 31, before the next meeting on June 8th, to fully assess today’s surprising weakness. But this report drives home the point that Canadian rates are going to stay low for quite some time yet, will help reinforce the narrowing in Canada/US spreads, and will further weigh on the C$ over the near term.”

Statscan said the weakness was concentrated in a 4.6% drop in utilities output (February was much warmer than January), and small declines in wholesale trade, construction, health care, and transportation. The decline in construction is a flat-out surprise, since housing starts and building permits were up in the month. The decline in transportation was partly due to the start of the rail strike. Mining was also clipped by a strike. Even health care and social assistance posted a very rare decline of 0.3%, which is likely to bounce back in the months ahead. These hits offset solid retail trade, a similar story to January. One other small bright spot was a small gain in manufacturing.

Cooper noted early indications for March are solid, with big gains in auto sales, home sales, and housing starts. However, employment dipped in the month (as it did in February), and various strikes could dampen output somewhat again (notably the CN strike). Growth for all of Q1 now looks like it will struggle to reach 2%, well below typical estimates of around 2.5% before today’s report.

Warren Lovely of CIBC World Markets said the GDP performance offers a few reasons “why talk of rate hikes in Canada is entirely premature.”

“With soft economic data piling up, the Bank of Canada is in no position to entertain taking rates higher. In fact, struggles on the growth front and well-contained core inflation could see the Bank deliver one more rate cut in the coming months. The size of today’s growth disappointment didn’t go unnoticed in financial markets, with bonds rallying and the C$ coming under pressure.

In a report, Lovely noted that starting a quarter off with a monthly decline is always bad news. “Following it up with a flat performance pretty much seals the deal: Q1 growth is going to look soft. Through two months of the quarter, average real GDP had grown less than 1% (annualized) vs the average level in Q4.

“So even with a huge recovery in March—something that could prove tricky given a jobs loss and retreating hours—first quarter growth risks coming in about a point lower than our earlier 2.4% call. Whatever the figure, it’s going to be miles back of the 4.2% tally put up in the US, highlighting the significant performance gap that has cropped up between Canada and the US since the C$ went on its earlier tear.”