The data agency said a slight rise in the services sector was not enough to offset a fall in goods-producing industries, so the overall value of total economic output during the month was essentially unchanged from a month earlier. . The flat performance was actually better than the slight 0.2% decline expected by economists. An advanced estimate for June showed the economy was slightly better last month as well, with an increase of 0.1%. Final numbers won’t be available until late August, but if June’s advanced data is confirmed, it means Canada’s economy grew 1.1% in the second quarter — not a strong reading by any measure, but at least better than a 0.9% contraction seen in the US over the same period. “Today’s [Gross Domestic Product] The data suggests that the Canadian economy slowed even before the largest of the Bank of Canada rate hikes took place,” said CIBC economist Andrew Grantham.
Momentum may be cooling, economist says
Scotiabank economist Derek Holt said while it was good to see the economy didn’t shrink in May, there isn’t much to suggest things are looking up heading into the second half of the year. “It looks like the momentum may be cooling,” he said. “There is no current trigger 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 U.S., which contracted at a rate of 1.25 percent over the same period. “While growth is now simmering rapidly after the Great Recovery, it compares very favorably with US trends,” Porter noted.
Effects on interest rates
The GDP numbers come against the backdrop of stubbornly high inflation, which has risen to its highest level in decades during the pandemic. Accordingly, Canada’s central bank has launched a campaign of hikes in its key lending rate in order to calm things down. Economists believed before the GDP number that the central bank was likely to keep raising interest rates due to inflation, and Friday’s modest GDP data will do little to deviate from that path. “We continue to see the central bank raising interest rates by 50 basis points in September,” said economist Royce Mendes with Desjardins.
