The Canadian economy advanced 0.3% month-on-month (m/m) in May, coming in a tick below Statistics Canada’s advanced estimate of 0.4% m/m. However, April’s flat reading was revised upward by one-tenth providing an offset to this month’s figure. The flash estimate for June growth points toward a -0.2% m/m contraction.
April’s reading was balanced, with output expanding in 12 of 20 industries. Services-producing industries led the gain, rising by 0.5% m/m. Goods-producing industries contracted by 0.3% m/m, after expanding in the four months prior.
As expected, goods-producing sectors were dragged down by the adverse effects of the wildfires in May. Oil and gas extraction fell 3.6% m/m, and excluding oil sands, dropped 6.6% m/m. All said, mining, quarrying, and natural gas shaved two-tenths off of the headline reading. Manufacturing (+1.6% m/m) partially offset the decline in goods, as supply chains issues continued to ease. The construction sector contracted 0.8% m/m in May, led by residential building construction (-1.8% m/m).
Also as anticipated, the public administration sector rebounded as workers came back to the job after striking until the end of April. The sector rebounded 1.3% m/m and contributed one-tenth to headline GDP. Wholesale trade also provided a lift to services, rebounding by a healthy 2.9% m/m after contracting for three straight months. The real estate sector provided an assist with a gain of 0.5% m/m.
This month’s 0.3% m/m for May mark’s the largest gain since January 2023. If advanced estimates are correct, June’s decrease will mark the first contraction since December 2022.
Key Implications
Canadian GDP came in roughly in line with expectations. With today’s print, last month’s upward revision and the flash estimate for June, second quarter GDP growth is tracking around 1.0%. This would undershoot the Bank of Canada’s (BoC) most recent 1.5% annualized estimate for Q2 growth and put it in line with our current forecast. Still, the BoC reiterated in their July policy statement that they are still concerned with excess demand.
Today’s reading points to some slowing momentum heading into the summer months. Since April, GDP data has been impacted by a series of transitory shock whose net effects make the data more difficult to interpret. Looking ahead, headline GDP figures may continue to be skewed by the government’s grocery rebate and the effects of the B.C. port strike in July. All said, slowing growth appears to be in the cards for the Canadian economy, and we believe this will be enough for the BoC to remain on hold at its next meeting.
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