Quick take

Scant Growth in May as Goods Economy Stutters

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  • The Canadian economy held steady in May as GDP growth remained essentially unchanged. The result marks a deceleration after three consecutive months of growth.
  • Statistics Canada’s preliminary estimate for real GDP growth in June is 0.1 per cent. If correct, this would mark a modest Q2 performance with the economy growing 1.1 per cent on the previous quarter, powered largely by activity earlier in the spring.
  • This month’s figures saw output fall in several goods-producing industries. Following a 2.0 per cent decline in manufacturing shipments in May, output followed suit as GDP in the manufacturing sector fell by 1.7 per cent. Meanwhile, output also declined in construction (–1.6 per cent) as well as mining, quarrying, and oil and gas extraction (–0.1 per cent).
  • In the service economy, there were notable gains in the transportation and warehousing industry. Increased demand for passenger transportation, particularly air travel drove this increase. Elsewhere, GDP continued to rise in accommodation and food services (1.9 per cent) and arts, entertainment and recreation (2.6 per cent).

Key Insights

Output in the real estate sector fell for a third consecutive month. As rising interest rates push up mortgage costs, demand for housing continues to soften. We expect the ongoing adjustment of the demand-supply dynamic in the housing market to exert downward pressure on prices with the average resale home prices forecast to fall steadily over the coming quarters.

Both crude oil and gas prices have fallen in recent weeks. Fears of worsening economic conditions have engendered pessimism in financial markets. Flagging consumer confidence signals that Canadians may soon cut back on purchases at gas pumps. As a significant driver of inflation, falling energy prices should provide some relief against the rising cost of living. Yet there remain significant supply challenges, not least the ongoing conflict in Ukraine. While we expect fuel prices to gradually fall over the coming quarters, there is risk of substantial near-term volatility.

Facing soaring inflation, the Bank of Canada is pushing down hard on the brakes with the overnight rate of interest increasing sharply over the last six months. As higher rates draw momentum from growth in consumption and investment in the coming months, we expect output growth in several sectors to weaken. Industries involved in the production and sale of durable goods namely, manufacturing, wholesale and retail trade are likely to face stronger headwinds as economic growth slows.

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Liam Daly

Liam Daly

Economist

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