Canada's economic growth ticks higher

Growth in Canada's economy edged up in May after stalling unexpectedly in April, helped by strength in the goods-producing sectors led by oil and gas extraction, while the service sector faltered for a second straight month. Real gross domestic product ticked up 0.1 percent in May, Statistics Canada said on Friday, matching market views and in line with expectations that economic growth in the second quarter slowed after the stunning expansion in the first quarter.
Statistics Canada did not revise its flat April GDP report, which had come as a shock after seven consecutive months of expansion. "While May's modest GDP growth was a step up from the prior month, it's clear that Canada's economic momentum is ebbing," said Benjamin Reitzes, an economist at BMO Capital Markets.
Analysts said the Canadian figures should keep the Bank of Canada on track to raise interest rates on September 8. Markets are pricing in roughly a 64 percent chance of a quarter-point increase in benchmark rates then, according to Friday's yields on overnight index swaps, which reflect expectations for the policy rate. Market views diverge for the rest of the year with some expecting the central bank to take a break from rate hikes. The Bank of Canada last week raised its key interest rate by a quarter percentage point for a second straight month and bumped down its growth forecasts, projecting second-quarter annualised growth of 3 percent, down from its earlier 3.8 percent forecast. Some private sector economists are less bullish on growth.
For the economy to meet the central bank's second-quarter growth forecast, GDP will need to expand by 0.6 percent in June, according to a Statscan analyst. The economy began to emerge from a mild recession late last year, growing at an annualised rate of 4.9 percent in the fourth quarter and 6.1 percent in the first three months of this year, the fastest growth in a decade.
Goods-producing industries rose 0.6 percent in the second quarter, led by oil and gas extraction, while manufacturing also edged higher. The service sector was down 0.1 percent, pulled down by lower activity in wholesale trade. Residential real estate was a weak spot for both the goods and services sides, with home building down 3.8 percent in the month, while real estate transactions were down for a fifth straight month.