2023-07-28 12:51:42
(OTTAWA) Canada’s economy grew 0.3% in May despite downward pressure from oil and gas production, hit by wildfires, but it appears to have slowed in June, Statistics Canada said Friday.
In its latest economic growth report, a preliminary estimate from the federal agency suggests that real gross domestic product (GDP) grew at an annualized rate of 1% in the second quarter.
The May figure is slightly below Statistics Canada’s expectations as mining, oil and gas companies scaled back activity in Alberta at the start of the record wildfire season.
The energy sector fell 2.1% in May, according to the federal agency. “This is the first drop in five months and the steepest since August 2020,” Statistics Canada said.
The modest increase in GDP in May was due, in part, to a rebound in the federal public administration sector, with most striking federal public servants returning to work at the end of April. However, 35,000 Canada Revenue Agency workers went on strike for three days in May, stalling the recovery.
The economy remained resilient in the second quarter, but growth started to look weaker at the end of that period, with wholesale sales posting one of their biggest declines in history in June, the report said. Economist Claire Fan, Royal Bank, in a note.
“The resilience of consumer demand that we have seen to date should not be overlooked, which adds to lingering inflationary pressures. But the momentum in services spending also appears to be waning – gross sales for food services and drinking places have held at lower levels than in January for months,” she wrote.
Drop to be expected in June
This modest growth is unlikely to continue, as the federal agency’s preliminary estimate for June suggests the economy contracted 0.2% last month. These figures will be revised by their official publication, in a month.
According to Statistics Canada, the decline announced by the preliminary estimate for June will be mainly attributable to the wholesale trade and manufacturing sectors.
Both sectors saw growth in May as semiconductor chip supply chain issues eased, but the downtrend in June is expected to “more than [contrebalancer] increases recorded in May,” the agency said.
This slowdown comes as the Bank of Canada’s key interest rate is 5%, its highest level since 2001. Soaring interest rates are expected to slow the economy, but the economy has generally done better than planned since the beginning of the year.
Despite high interest rates, the real estate sector should continue to grow in June.
In May, home resale activity in most of Canada’s largest markets led to a 7.6% increase in the industry.
Data more difficult to interpret
A series of transitory shocks since April, such as wildfires, have made the data harder to interpret, TD Bank economist Marc Ercolao said in a note.
“Secondly, the overall GDP figures might continue to be skewed by the government grocery refund and the impact of the strike at British Columbia ports in July,” he said.
But June’s pullback will likely encourage the Bank of Canada to hold its key rate in September, following announcing a hike earlier in July, Ercolao noted.
“Slower growth appears to be on the cards for the Canadian economy, and we believe this will be enough for the [banque centrale] remains pending at its next meeting,” he said.
The Bank of Canada will not hesitate to raise rates further if necessary, Claire said. Fan, but she added that “the worst [était] yet to come” for households struggling with rising debt service costs.
“We expect this to slow spending, lower inflation and keep the [banque centrale] out in the second half of this year,” she explained.
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