OTTAPORA –
The Canadian economy grew by 0.3 percent in May, despite downward pressure from wildfire-hit oil and gas production, but appears to have slowed in June, Statistics Canada said on Friday.
In its latest economic growth report, the federal agency’s preliminary estimate suggests that real gross domestic product grew at an annualized rate of one percent in the second quarter.
The May figure came a little lower than expected by Statistics Canada after mining and oil and gas companies scaled back their operations in Alberta at the start of the record wildfire season.
The energy sector was down 2.1 percent in May, the statement said.
“This was the sector’s first decline in five months and the largest since August 2020,” the agency said.
Modest GDP growth in May was driven in part by a rebound in the public administration sector after most striking federal public employees returned to work by the end of April. However, 35,000 Canada Revenue Agency workers went on strike for three days in May, which softened the rebound.
The economy remained resilient in the second quarter, but growth began to look weaker by the end of the period, with wholesale sales posting one of their biggest declines in history in June, RBC economist Claire Fan said in a note.
“The resilience in consumer demand we have seen to date should not be overlooked, adding to the sticky inflation pressures. But the momentum in service spending also appears to be diminishing-gross sales at food services and drinking places have been trending downwards this January for months,” she wrote.
That modest growth is unlikely to hold, as the federal agency’s preliminary estimate for June suggests the economy contracted by 0.2 percent.
Statistics Canada says the estimated decline in June is largely due to the wholesale trade and manufacturing sectors.
Both sectors saw growth in May as supply chain issues related to semiconductor chips eased, but the downward trend in June is expected to “more than offset the increases recorded in May,” the agency said.
The slowdown comes as the Bank of Canada’s main interest rate falls to five percent, the highest it has been since 2001. Interest rate increases are expected to slow the economy, although overall it has performed better than expected this year.
The real estate sector, for example, is expected to continue to grow in June despite high interest rates.
In May, home sales in most of Canada’s largest markets led to an industry growth of 7.6 percent.
A series of transitory shocks since April, such as wildfires, has made the data harder to interpret, TD economist Marc Ercolao wrote in a note.
“Looking ahead, key GDP figures may continue to be skewed by the government’s food rebate and the effects of the port B strike. C. in July, ” he said.
But the withdrawal in June is likely to help support a check on the Bank of Canada’s main policy rate in September after it announced an increase this month, Ercolao said.
“Slowing growth appears to be on the cards for the Canadian economy and we believe this will be enough for the (central bank) to remain on hold at its next meeting,” he said.
The Bank of Canada will not hesitate to raise rates further if necessary, Fan said, but she added that “the worst is yet to come” for households dealing with rising debt servicing costs.
“We expect it will cushion spending, push inflation lower and keep the (central bank) on the sideline during the second half of this year,” she said.
This report by Canadian Press was first published on July 28, 2023.
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