The Canadian economy expanded by +0.3% month-over-month (m/m) in April, beating Statistics Canada’s flash estimate of +0.2%. Surprisingly, the flash estimate for May showed a decrease of 0.2% m/m.
April’s increase in activity was fairly broad, with output expanding in 13 of the 20 industries. The goods-producing sector rose 0.9%, while the service-producing sector rose 0.1%.
Substantial growth was seen in the mining, quarrying and oil and gas sectors, which grew at 3.3% on the month. This was a product of high production growth in oil, natural gas, and potash.
The increasing demand for in person services continued to push the accommodation and food services sector higher (+4.6%). This was led by a 3.5% rise in the food services and drinking places sector.
Though the data for April was upgraded, the drop in the flash estimate for May is certainly a worry. Despite May’s flash print being only a preliminary estimate and there is a lot of volatility in the data, there is risk that Canada’s recent outperformance relative to its global peers may be coming to an end. As we highlighted in our recent Quarterly Economic Forecast, the impact of rising interest rates and high inflation will cause a deceleration in Canadian economic growth.
Though this report is sure to raise eyebrows, we don’t expect it to stop the Bank of Canada (BoC) from raising its policy rate by 75 basis points at its meeting on July 13th. With the economy remaining in excess demand and current inflation pressures showing no signs of abating, more aggressive action by the BoC is warranted.