May was a solid month on the whole for Canada’s economy as the gross domestic product edged up 0.2 per cent, exceeding economists’ expectations.
The strong GDP numbers from Statistics Canada suggest the country could be tracking better than the Bank of Canada’s annualized second-quarter growth forecast of 2.3 per cent, economists say.
Many economists at Canada’s top banks said Wednesday morning that the country’s GDP could rise at an annualized rate of about 3 per cent in the second quarter, rather than the 2.5 per cent that most were looking at prior to this report.
“It’s certainly good news,” Sherry Cooper, chief economist at Dominion Lending Centres, said. “All the economists are raising their forecast for Q2 growth.”
Economists now say the Bank of Canada will probably not cut interest rates like its counterpart, the U.S. Federal Reserve, did on Wednesday afternoon. The American central bank’s interest rates are now set to hover between 2 per cent and 2.25 per cent. Canada’s prime rate is currently 3.95 per cent.
“Unless financial conditions deteriorate enough to jeopardize the outlook for the second half of 2019 and 2020, don’t expect the Bank of Canada to match the Federal Reserve’s interest rate cuts,” Krishen Rangasamy, managing director and senior economist with National Bank, said in a research note.
The third solid monthly GDP report in a row signals Canada’s economy is recovering after a weak start to the year.
Strength in manufacturing led the growth as vehicle production levels returned to normal after temporary shutdowns at some plants in April.
Construction also made gains, with the residential construction sector posting its strongest growth in more than a year. But levels are still about 5 per cent below where they were this time last year, according to Canadian Imperial Bank of Commerce managing director and chief economist Avery Shenfeld.
The transportation sector grew as well, with rail transportation increasing 4.9 per cent in May. More coal, petroleum and automotive products travelled by train that month. By contrast, pipeline transportation decreased slightly because of less natural gas moving through Canadian lines.
Retail and wholesale industries posted contractions. Some economists predicted Raptors mania, spread over May and June, could give retail sales a boost. But bad weather dampened overall springtime purchases and the sector shrunk by 0.4 per cent.
Wholesale trade also fell 1.4 per cent in May, and oil and gas extraction decreased 2.5 per cent after two months of growth.
The Toronto Raptors probably did boost the arts and entertainment sector though, according to the Bank of Nova Scotia’s head of capital markets economics Derek Holt. The sector grew by 0.5 per cent in May, “in part because of higher attendance at spectator sports,” according to Statistics Canada.
However, Stephen Brown, chief Canada economist with Capital Economics, cautioned that temporary factors played into May’s strong numbers – like an end to a winter full of severe weather and Alberta increasing its ceiling on oil production.
Mr. Brown believes faltering GDP growth elsewhere in the world could cause uncertainty in Canada later this year.
But others said we’re in a good place compared with other markets.
“Canada’s a standout right now,” Ms. Cooper said. “Around the world, central banks are busy cutting interest rates. And here … you talk about 3-per-cent growth when unemployment is at a record low. That’s really quite astonishing.”
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