The Canadian economy flatlined in April, coming in below Statistics Canada and consensus estimates of 0.2% month-on-month (m/m). However, the disappointment is somewhat offset by a one tick upgrade to March, and a flash estimate pointing to a healthy rebound of +0.4% m/m in May.
April’s reading was mixed, with output expanding in 11 of 20 industries. Services-producing industries remained effectively flat for a third straight month, while goods-producing industries rebounded to 0.1% m/m, after a slight contraction in March.
The gain on the goods side was led by oil and gas extraction (+2.1% m/m), helping the broader mining, quarrying, and oil & gas sector rise for a fourth straight month. Partially offsetting growth in goods sectors was a 0.6% m/m contraction in manufacturing, driven by chemical manufacturing (-2.6%).
As anticipated, cumulative services activity was dragged down by the public administration sector (-1.0% m/m) on the back of April’s federal public sector worker strike. The real estate and rental and leasing sector provided a partial offset, expanding 0.5% m/m driven by strength in the housing resale market. Transportation and warehousing was up 0.4% m/m.
Estimated growth of 0.4% m/m for May would mark the largest gain since January 2023. The gain is likely to be derived from a rebound in federal government public administration, as well as activity in manufacturing and wholesale sectors.
Key Implications
Canadian GDP surprised to the downside, but details didn’t flash any major warning signs. With today’s print and the flash estimate for May, second quarter GDP growth is tracking around a trend pace. This would once again overshoot the Bank of Canada’s (BoC) most recent 1.0% annualized estimate for Q2 growth.
The BoC is waiting for a few more key markers before making their policy decision on July 12, notably June jobs data next week. In our view, today’s GDP print doesn’t change the balance of risks towards another quarter-point hike of the policy rate at next meeting–markets are split down the middle on the odds of a hike. We think that ongoing strength in economic activity, a still-tight labour market, and inflation above target tips the likelihood towards a 25 bps hike to 5.00% in July.
 most recent 1.0% annualized estimate for Q2 growth.){kind=link}