Canada’s economy did not expand at all in May, the second month of the year in which it did not make any gains, Statistics Canada said Friday.
The data agency said a slight pick-up in the services sector was not enough to offset a decline in goods-producing industries, so the total value of all economic output for the month was essentially unchanged compared to what it was a month earlier.
The flat showing was actually better than the slight 0.2 percent decline that economists had expected.
An advance estimate for June suggested the economy also fared slightly better last month, with an increase of 0.1%.
Final numbers won’t be available until late August, but if June’s advanced figure holds up, it means Canada’s economy grew 1.1 percent in the second quarter, not a strong showing by any means. metric, but at least better than contraction. of the 0.9% seen in the US during the same period.
“The one today [Gross Domestic Product] The data suggests the Canadian economy was slowing even before the biggest of the Bank of Canada’s rate hikes took place,” said CIBC economist Andrew Grantham.
The momentum may be cooling, the economist says
Scotiabank economist Derek Holt said that while it was good to see the economy didn’t contract in May, there is little to suggest things are looking good heading into the second half of the year.
“It looks like the momentum may be cooling,” he said. “No upside for Q3 GDP based on the math so far.”
Others found reason for optimism in the numbers. Bank of Montreal economist Doug Porter noted that the annual growth rate of Canada’s economy in the first half of this year was 3.75%.
That’s a full five percentage points better than the United States, which shrank to a 1.25 percent pace over the same period.
“While growth is clearly decelerating rapidly after the big rebound, it compares very favorably with US trends,” Porter noted.
Impact on interest rates
The GDP figures come against the backdrop of stubbornly high inflation, which has risen to its highest level in decades during the pandemic. As a result, Canada’s central bank began a campaign of increases in its benchmark lending rate, in order to cool things down.
Economists thought before the GDP number that the central bank was likely to keep raising its rate due to inflation, and Friday’s lackluster GDP data will do little to deviate from that path.
“We continue to see the central bank raising rates by 50 basis points in September,” said economist Royce Mendes with Desjardins.