Canada’s economy likely contracted in May after April’s gain

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OTTAWA — Canada’s economy most likely contracted in May, largely due to a decline in oil and gas production, official data showed Thursday, while GDP growth in April was in line. analysts’ forecasts.

In a preliminary estimate, Statistics Canada said gross domestic product likely fell 0.2% in May, following a 0.3% gain in April. Economic growth in April, which matched the median forecast of a Reuters analyst poll, was largely driven by the oil and gas sector, with activity up across the board.

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« In the short term, we won’t know if the economy is turning around or just taking a brief detour, » Royce Mendes, head of macro strategy at Desjardins Group, said in a note.

“Either way, a slowdown in growth will not alter the Bank of Canada’s plans to raise rates aggressively. Inflation is just too high,” Mendes added.

The Bank of Canada is rapidly raising interest rates in an effort to rein in inflation, which hit a nearly 40-year high of 7.7% in May on an annualized basis. The central bank is expected to go ahead with a very rare 75 basis point hike in its July decision.

Money markets see the Bank of Canada’s key rate hitting 3.25% by the end of this year, up from 0.25% at the start of 2022.

This rapid tightening contributed to the decline in Canada’s real estate and rental sector in April, which recorded its largest monthly decline on record outside of March and April 2020, when the coronavirus pandemic took hold. .

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« Real estate unsurprisingly held back growth, given the impact of rising rates on trading volumes, » Andrew Grantham, senior economist at CIBC Capital Markets, said in a note.

The financial sector also contracted in April, falling 0.7%, after high levels of activity in March, Statscan said.

But accommodation and food services continued to rebound from pandemic-related restrictions, with activity in restaurants and bars exceeding pre-pandemic levels for the first time.

The Canadian dollar pared its decline after the data, trading down 0.1% at $1.29 against the US dollar, or 77.52 cents US.

Soaring crude and commodity prices are expected to boost the Canadian economy this year, even as a looming economic storm threatens to tip wealthy G7 nations into recession. (Reporting by Julie Gordon in Ottawa, additional reporting by Dale Smith in Ottawa and Fergal Smith in Toronto Editing by Tomasz Janowski and Paul Simao)