(April 30 – 12:10 ET) – Economists say that February’s weak GDP report may indicate that the Canadian economy has bottomed out.

Canadian GDP was just barely negative in February, down 0.1%. Consensus expectations called for a 0.2% to 0.3% decline. Economists were slightly surprised by the stonger than expected number. According to BMO Nesbitt Burns the outcome of the results could be 1.5% growth for the Canadian economy in the first quarter, rather than the1% that it predicted.

Manufacturing was very weak in February, as expected. It dropped 0.9%, thanks primarily to weakness in high-tech production. The output of electrical and electronics products plunged 9.1% in the month, the largest decline in the 40 years of monthly GDP reports. Auto production was also weak.

All in all, economists are relieved though. “Given earlier indications, today’s GDP decline could have been much worse. Still, the small setback reinforces the fact that growth downshifted dramatically in Q1,” says BMO Nesbitt Burns.

The folks at RBC DS Global Markets say that once excess inventories are burned off, growth should resume. “The inventory correction has been underway for some time and is not expected to drag on Q2 growth as much as it did on Q1. Coupled with recent evidence that the U.S. economy retains better-than-expected momentum, we expect Q1 to have been the trough in Canadian growth.”

CIBC World Markets suggests that with our growth apparently lagging the United States, the Bank of Canada could be prompted to more aggressive rate cutting. “With an erosion of economic momentum expected in Q2, the sustainability of the bank’s go-slow approach to monetary easing could soon be tested. We look for the Bank of Canada to continue cutting rates at the end of May. Dodge and Company will take their cue from the Fed, but with growth running slower than the U.S., an aggressive rate-cutting move is warranted.”

BMO confirms that inflation shouldn’t pose an obstacle to rate cutting, noting that today’s industrial price report confirms their restrained condition. “Industrial prices are not a threat to inflation. The underlying trend in prices has been downward, and if the effect of the declining Canadian dollar is removed, price increases hover around 1.0% year-on-year.”