The Canadian economy bounced back in April, up 0.3% month-on-month (m/m). This print landed in line with Statistics Canada’s advanced guidance and market expectations. The flash estimate for May points to a slight advance of 0.1% m/m.
April’s reading was broad-based, with output expanding in 15 of 20 industries. The gain was evenly split between goods and services sectors, both expanding by 0.3% m/m.
Wholesale trade contributed most on the services side, growing by 2.0% m/m, the fastest pace since May 2023. Growth in accommodation and food services (1.9% m/m) and finance and insurance (0.4% m/m) also provided an assist.
On the goods side, support activities for mining and oil and gas extraction helped the overall sector grow by 1.8% m/m in April. The manufacturing sector also expanded by 0.4% m/m after contracting for two consecutive months. A small pullback in the construction sector (-0.4% m/m) offset some of the growth on the goods side.
The advanced reading for 0.1% growth in May is being driven by gains in the manufacturing, real estate and finance sectors, with retail and wholesale trade acting as a headwind.
Key Implications
GDP data for April came in bang on with expectations, which has kept growth tracking for the second quarter steady. The Canadian economy indeed started Q2 on solid footing, with early tracking suggesting trend-like growth for the quarter. This would roughly match growth in the first-quarter, which came in at 1.7% quarter-on-quarter annualized.
The Bank of Canada is likely satisfied with today’s report. On one hand, there doesn’t appear to be signs of a reacceleration in growth. On the other, the Bank should take comfort that its Q2 growth forecast is materializing so far. The stability in the GDP reading will allow the Bank of Canada to keep its focus more squarely on the evolution of inflation, especially with the start of its interest rate easing cycle underway. We believe that the Bank of Canada will hold off on another interest rate cut next meeting, opting instead to move rates lower in September, which will allow them to assess both inflation (and growth) dynamics until then.
