Canada’s economy kept growing despite a slowing pace through the second quarter of the year, according to preliminary data released Wednesday.
Statistics Canada said May’s real gross domestic product was up 0.2 per cent in the month, ahead of most economists’ expectations. Manufacturing led growth in the month with the largest jump seen in the sector since January 2023, offsetting a slowdown in retail.
The expanded Trans Mountain pipeline came online during the month, helping to drive up pipeline transportation sector last month.
May’s growth eased somewhat from 0.3 per cent growth in April, but is ahead of the early estimates for 0.1 per cent growth in June.
“Make no mistake, the Canadian economy is paddling fast just to keep its head above water, but it is still managing to slowly move forward,” BMO chief economist Doug Porter said in a note to clients Wednesday.
Finalized figures for the second quarter of the year will be released at the end of August.
Early estimates suggest growth in the second quarter is tracking at roughly 2.2 per cent on an annualized basis, outpacing the Bank of Canada’s latest estimates for 1.5 per cent growth in the quarter.
As it delivered its second consecutive cut to the benchmark interest rate last week, economists noted a shift in the Bank of Canada’s tone, now increasingly focused on risks that inflation might drop past the target of two per cent.
While the central bank has previously been looking for signs the economy is slowing as it seeks to rein in inflation, the Bank of Canada is forecasting a pick-up in economic growth in the third quarter of the year, even as price pressures continue to cool.
Governor Tiff Macklem has said that with growing confidence that inflation will return to two per cent, there is likely room for a return to growth en route to price stability.
CIBC chief economist Avery Shenfeld said in a note to clients Wednesday that the stronger-than-expected results for the second quarter so far suggest the Bank of Canada will have to revise up its forecasts for the period, but likely won’t get in the way of future interest rate cuts. He said calls for another rate reduction at the central bank’s September meeting is based more on inflation readings than GDP results.
Porter said that the GDP figures suggest the Canadian economy is holding pat, and is neither in need of steeper rate cuts to stay afloat nor running too hot to suggest higher interest rates are still needed.
“Canada’s economy is still walking that fine line of struggling to keep upright, but just staying out of serious trouble, consistent with continued, measured interest rate cuts,” he said.