Highlights:
- Canadian GDP rose an impressive 0.6% in May following a 0.2% gain in April.
- Market expectations had been for a much more moderate 0.2% increase with the upward surprise mainly concentrated in the mining sector soaring 4.6% in the month.
- Today’s report is indicative of no slowing in Q2 from the Q1 annualized increase of 3.7%.
Our Take:
Canadian GDP jumped a much stronger than expected 0.6% in May marking the 7th consecutive month of increases. The upward surprise was mainly concentrated in the mining sector as it soared 4.6% in the month. There was an expected return of an oil sands upgrader after a temporary shutdown starting in March but the strength went well beyond this factor and occurred despite oil prices remaining moderately weaker than expected. A year ago this sector was hammered by the Alberta wildfires and widespread shutdowns of oil sands production facilities. Eliminating the upward impact of the mining sector GDP growth would still have increased a solid 0.2% despite a one-week construction strike in Quebec that subtracted about 0.1 percentage point from overall monthly growth. Thus today’s report is indicative of solid growth persisting in the Canadian economy through the second quarter.
With today’s report the annual year-over-year increase in GDP has jumped to 4.6% in May from 3.3% in April and an annual increase in 2016 of only 1 1/2% . In large part this rebound reflects a strong upward trend in mining output with today’s report continuing this pattern of strong support. Additionally the manufacturing sector has been steadily, albeit more slowly, improving. Today’s report showed that the annual increase in manufacturing activity jumped to an impressive 5.2%, teeing up for the second quarter to build on Q1’s 2.1% rise. This improvement in part is due to increasing demand for manufactured goods from the energy sector but also likely reflects rising external demand with U.S. industrial production starting to trend higher. Our forecast assumes that these supportive factors will likely be sustained through the forecast allowing manufacturing to continue to provide support to overall growth in the economy.
