Statistics Canada reported that the Canadian economy experienced a second consecutive monthly contraction in May, but there were positive indicators of a recovery in June. Real gross domestic product (GDP) dropped by 0.1% in May, in line with the decline seen in April. The decrease in May was primarily attributed to declines in the goods-producing sectors, particularly in mining, quarrying, and oil and gas.
However, there were some positive developments in certain sectors. Manufacturing activity grew by 0.7% in May, offsetting some of the 1.8% decline in April due to the impact of U.S. tariffs. Despite this growth, manufacturing activity in May remained 1.1% lower than in March. Transportation and warehousing also rebounded from a decline in April.
The real estate and rental industry saw an uptick in activity, driven by increased home resales, especially in Toronto. Additionally, the spectator sports industry saw growth in May with three Canadian teams advancing to the second round of the NHL playoffs.
Douglas Porter, the chief economist at BMO Financial Group, viewed the report as a positive sign amidst ongoing trade tensions. He noted that the Canadian economy seemed to have weathered the trade uncertainty better than anticipated. However, Porter cautioned that overall economic softness persists, and the data for June, set to be released in the coming weeks, will provide a clearer picture of the extent of the rebound.
Early estimates from Statistics Canada for June point to an expected 0.1% rebound in real GDP growth. Retail and wholesale trade are driving this growth, although manufacturing is anticipated to have declined in the same month. The advance reading for the second quarter suggests that the economy remained relatively stable. The Bank of Canada projected a 1.5% annual decline in real GDP for the second quarter due to uncertainties related to U.S. tariffs.
Porter highlighted the difference between the monthly GDP figures, which measure industry output, and the Bank of Canada’s estimates, which track actual spending. He emphasized that these estimates may not always align, especially during periods of significant shifts in exports and imports.
The Bank of Canada opted to maintain its policy rate at 2.75% for the third consecutive time, citing signs of resilience in the Canadian economy. The central bank’s decision reflects confidence in the economy’s ability to withstand external pressures.
