Exactly one week after the Bank of Canada’s dovish rate cut, we get our first major economic release: Canada’s GDP in May.

The Canadian economy performed slightly better than expected in May, growing by 0.2% and ahead of the advance estimate of 0.1%.

Digging into the details… 

• The goods-producing sector (+0.4%) led the gains, lifted by the manufacturing sector. Petroleum refining ramped up after maintenance disruptions in April. 
• Services did not fare as well (+0.1%), with a contraction in the retail sector (not surprising given the pullback we saw in May retail spending). Side note: Statistics Canada said three Canadian NHL teams in the playoffs contributed to an expansion in the arts and entertainment category.
• On a year-over-year (y/y) basis, the economy grew a modest 1.1% (well below population growth of over 3%). The business sector advanced 0.8% y/y, trailing growth in the public sector of 2.5%. 

Turning to June, the advance estimate suggests a modest 0.1% increase.

Based on the industry data, second quarter GDP is now tracking just over 2% annualized, higher than the Bank of Canada’s forecast of 1.5% but still very weak in per capita terms.*

We don’t get a provincial breakdown, but there are clues from the industry data. More relevant to Alberta, oil and gas extraction GDP slipped in May, with oil sands maintenance activities weighing.  The trend, however, is positive this year (up 4.5% year-to-date). Oil and gas GDP was up a solid 7.2% year-over-year in May, though that partly reflects a dent to production from wildfires one year prior. The commencement of the Trans Mountain Expansion boosted Canadian GDP, with pipeline transportation up 0.6% in May.

*Technically, growth in GDP by industry is only a proxy for quarterly GDP by expenditure in the national accounts. However, the two series tend to move together.

Implications:

While better than expected, we don’t see this report changing the Bank of Canada’s stance just one week after their second straight rate cut. Some of the gain is due to temporary factors and the weakness in the retail sector points to a struggling consumer. Per capita GDP is soft and there is excess supply in the economy. With the Bank of Canada talking more about downside risks, next week’s more timely labour force data for July will be one to watch amid signs of a cooling labour market. We continue to look for two more 25-basis point rate cuts this year.

For Alberta, this year’s improvement in Canada’s oil and gas sector is consistent with our forecast that rising oil production will add significantly to Alberta’s GDP growth in 2024.

Answer to the previous trivia question: World Aquatics (the governing body for all aquatic sports formerly known as the Fédération Internationale de Natation) requires the temperature of an Olympic swimming to be kept at 25 to 28 degrees Celsius.

Today’s trivia question: What is the age of the youngest athlete on Canada’s 2024 Summer Olympics team?