In May, Canada’s economy grew more than expected, rising 0.2% according to Statistics Canada’s latest figures.

That’s a tick above forecasts, but was down from April’s reading of 0.3%. StatCan’s preliminary estimate also shows that growth likely continued to ease in June, with a reading of just 0.1%.

However, despite the better-than-expected economic performance, economists highlight a less impressive outcome on a per-capita basis.

“While Canada’s GDP gains in May and June were a touch better than we expected, this wasn’t a medal-winning performance given the strong pace for population growth,” noted CIBC’s Avery Shenfeld.

Output per person has fallen in six out of the past seven quarters, “a streak not previously seen outside of a recession,” notes Marc Desormeaux of Desjardins Economics. “Today’s data suggest it will be seven out of eight once the Q2 GDP by expenditure and population data are released in the months ahead.”

Broad-based economic growth in May

May’s GDP reading showed broad-based growth, with output expanding in 15 of 20 sectors. The goods-producing industries led with a 0.4% monthly gain, while the services sector saw a more modest increase of 0.1%.

On a weighted basis, manufacturing was the main driver of the month’s GDP growth, rising by 1% month-over-month.

If Statistic’s Canada’s 0.1% estimate for June is accurate, second-quarter growth would come in at roughly 2.2%, the fastest quarterly growth since Q2 2022, points out TD’s Marc Ercolao.

He adds that June’s growth is expected to be driven by gains in construction, real estate and finance sectors, with manufacturing and wholesale trade likely to act as a drag.

Bank of Canada’s September rate cut still on track

Taken all together, the details of today’s GDP report suggest the Bank of Canada is likely to proceed with a third consecutive rate cut in September, according to some economists.

“A slower growing economy, in tandem with further evidence of loosening labour markets, falling inflation and easing wage growth should allow the Bank of Canada to proceed with another 25bp rate cut in September,” writes Oxford Economics economist Michael Davenport.

RBC economist Abbey Xu agrees, adding that RBC expects two more quarter-point rate cuts by the Bank of Canada before the end of the year.

“Early indicators for June, including wholesale sales (-0.6%), manufacturing sales (-2.6%), and retail sales (-0.3%), all suggested that the momentum is waning towards the end of the quarter,” she wrote.

Currently, bond markets are pricing in less than a 60% chance of another Bank of Canada rate cut on September 4. However, these odds are expected to change as more economic data becomes available in the coming month.

Abbey Xu economic indicators economic news gdp Marc Desormeaux Marc Ercolao Michael Davenport statistics canada

Last modified: July 31, 2024