Canada’s Economy Beats Expectations in May

Jul 31 26, 13:07 GMT

Canadian GDP rose by 0.3% month-on-month (m/m) in May, two ticks higher than Statistics Canada’s advanced guidance.
Growth was broad-based with 13 of 20 industries registering an increase on the month. Goods industries rose for a second straight month (+0.6% m/m), while the services sector grew by 0.2% m/m.
Outside of agriculture (-0.9% m/m), goods producing industries were up across the board, led by a 1.0% m/m increase in the mining, oil & gas sector. Solid gains in construction (0.8% m/m) and utilities (0.7% m/m) provided an assist.
On the services side, the public sector aggregate expanded 0.3% m/m, led by an advance in public administration. The real estate sector continues to gain steam (+0.4% m/m) while transportation and warehousing also jumped by 0.3% m/m. Canada’s services side of the economy has now grown for four consecutive months.
Advanced guidance for June points to another gain of 0.2% m/m gain. A lift in the finance/insurance/real estate and wholesale/retail sector is expected to be partially offset by a drag in utilities.

Key Implications

This was a solid print coming off the heels of April’s strong rebound. May’s GDP gain reinforces confidence in the Bank of Canada’s view that growth resumed in the second quarter, with real GDP tracking around 3.0% annualized, slightly ahead of the Bank’s most recent forecast. It’s increasingly looking like the stalling of growth in the first quarter was more reflective of temporary drags and volatility rather than a meaningful deterioration in underlying activity.
For the Bank of Canada, this keeps the policy narrative largely unchanged. Growth is proving resilient enough to forego additional rate relief, while contained inflation readings, lingering labour market slack and ongoing trade uncertainty argue against a shift toward a more restrictive stance. As such, today’s report is consistent with our expectation that the Bank has cover to remain on the sidelines for the remainder of the year. Growth will likely take a breather come the third quarter as temporary factors related to Census hiring and World Cup activities unwind.