The Canadian economy grew for a second consecutive month, up by 0.2% month-on-month (m/m). This print landed ahead of Statistics Canada’s advanced guidance and market expectations of a 0.1% m/m gain. The flash estimate for June points to a 0.1% m/m gain.
May’s reading was broad-based, with output expanding in 15 of 20 industries. Goods-producing industries (0.4% m/m) did most of the heavy lifting, meanwhile growth in services was up a more modest 0.1% m/m.
On a weighted basis, the manufacturing sector contributed most to the overall gain in May’s GDP, and was up for a consecutive month (+1.0% m/m). The oil & gas sector (-0.6% m/m) was the only goods industry to contract on the month, pulled lower by declines in the oil and gas extraction subsector.
On the services side, education, health care, and public admin all grew between 0.3%–0.5% m/m. The startup of the Transmountain pipeline helped pull the transportation sector forward by 0.1% m/m in May. On the downside, retail trade fell by 0.9% on the month with most subsectors seeing declines.
The advanced reading of 0.1% m/m growth in June is being driven by gains in the construction, real estate and finance sectors, with manufacturing and wholesale trade acting as a headwind.
Key Implications
GDP data for May came in a bit stronger than expectations, which has put second quarter growth tracking around 2.2%, which if realized, would be the fastest quarter of growth since Q2-2022. The Canadian economy appears to be showing some resilience in the second quarter led by a strong showing in the goods sectors. Advanced guidance for June suggests that current strength may not be sustained.
GDP readings of late have been relatively stable, allowing 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 well underway. With two interest rate cuts under its belt–and likely a couple more this year–we’d expect the growth backdrop to continue to be supported. The BoC is particularly upbeat about third quarter growth (2.8% q/q annualized), but we expect the weight of still-high interest rates to result in more trend-like growth next quarter.
