Real gross domestic product (GDP) increased 0.3% in May, following a 0.1% uptick in April. Services-producing industries were up 0.5%, while goods-producing industries partially offset the increase with a 0.3% decline in May. Overall, 12 of 20 industrial sectors posted increases, reported Statistics Canada on Friday.
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“Advance information indicates that real GDP decreased 0.2% in June. The decrease was driven by the wholesale trade and manufacturing sectors, whose downward movements more than offset the increases recorded in May. These decreases were partially offset by increases in oil and gas extraction as well as in the real estate and rental and leasing sector in June. Oil and gas extraction’s increase partially offset the decrease recorded in the previous month. This advance information indicates a 0.3% increase in real GDP by industry in the second quarter of 2023. Owing to their preliminary nature, these estimates will be updated on September 1, 2023, with the release of the official GDP data for June and the second quarter,” said the federal agency.
A rebound in wholesale and public administration helped boost GDP, with the latter bouncing back in May as most federal government workers who were on strike returned to work by the end of April. Moreover, gains in manufacturing and real estate and rental and leasing also helped boost growth, said StatsCan, adding that mining, quarrying and oil and gas extraction was the biggest detractor to growth in May, as many companies, specifically in Alberta, reduced operations as a result of forest fires in the province.
“The energy sector, which was severely impacted by wildfires in May, was down 2.1%. This was the sector’s first decline in five months and its largest since August 2020. In May 2023, the energy sector was most impacted by declines in mining, quarrying and oil and gas extraction, which fell 2.9%,” said the report.
“Following four months of growth, the oil and gas extraction subsector fell 3.6% in May, as all components contributed to the decline. Oil and gas extraction (except oil sands) dropped 6.6% as a result of the forest fires in Alberta. The fires primarily impacted installations in the western parts of the province, from Edmonton to the Rocky Mountains’ Foothills in the Clearwater, Montney and Duvernay formations. These played a crucial role in the industry’s largest monthly contraction since April 2020, resulting in a steep drop in both natural gas extraction and crude oil. Oil sands extraction decreased 1.6% in May 2023, as maintenance at a number of facilities in Alberta throughout the month contributed to lower production.”
Marc Ercolao, Economist with TD Economics, said Canadian GDP came in roughly in line with expectations.
“With today’s print, last month’s upward revision and the flash estimate for June, second quarter GDP growth is tracking around 1.0%. This would undershoot the Bank of Canada’s (BoC) most recent 1.5% annualized estimate for Q2 growth and put it in line with our current forecast. Still, the BoC reiterated in their July policy statement that they are still concerned with excess demand,” he said.
“Today’s reading points to some slowing momentum heading into the summer months. Since April, GDP data has been impacted by a series of transitory shock whose net effects make the data more difficult to interpret. Looking ahead, headline GDP figures may continue to be skewed by the government’s grocery rebate and the effects of the B.C. port strike in July. All said, slowing growth appears to be in the cards for the Canadian economy, and we believe this will be enough for the BoC to remain on hold at its next meeting.”
Andrew Grantham, Senior Economist with CIBC Capital Markets, said through the volatility that is inherent within the monthly GDP data, the Canadian economy appears to have cooled a little more than the Bank of Canada’s MPR forecast in Q2.
“May GDP posted a 0.3% increase, which was in line with the consensus forecast and followed a slightly upwardly revised 0.1% advance in April. Manufacturing and wholesale were large contributors to the monthly increase. Growth during the month was also aided by a rebound in public administration, which had fallen in April due to strike activity among federal government workers. Activity in the energy sector, however, fell by 2.1% in May as forest fires in Alberta negatively impacted oil and gas production,” he said.
“The advance estimate for June pointed to 0.2% decline in GDP, due to retreats in wholesale and manufacturing following May’s gains. Those declines appear to have counteracted a partial rebound in oil & gas production and further growth in real estate. For Q2 as a whole, growth appears to be tracking around a 1% annualized pace, which is a half point below the Bank of Canada’s MPR forecast. However, there is scope for a rebound in the energy sector to help support activity in Q3.”
Doug Porter, Chief Economist with BMO Economics, said this is a somewhat disappointing suite of figures, as the estimated 1.2% annualized rise for all of Q2 follows a solid 2.4% gain reported in the U.S. yesterday for the same period.
“The underperformance is no shock, given that the economy was dealing with the civil servant strike, wildfires, and swings in the auto sector. Breaking it down by the three months in the quarter versus our expectations, April was 1 tick better, May was as expected, and June was 2-3 ticks below. While the June handoff to Q3 is soft, we suspect that that weakness will reverse in the summer, as it was heavily concentrated in the whippy auto sector. The bigger picture is that growth is going to struggle to stay firmly in the positive column in the second half of the year, and we are likely to see more back-and-forth months like May and June resulting in very slow growth overall,” he said.
Claire Fan, Economist with RBC Economics, said Canadian GDP remained resilient in Q2.
“But growth is starting to look weaker by the end of the quarter – wholesale sales posted one of the largest declines in history in June. The resilience in consumer demand we’ve seen to-date is not to be overlooked, adding to sticky inflation pressures. But momentum in services spending also appears to be waning – gross sales at food services and drinking places have been trending at levels below this January for months. The BoC won’t hesitate to hike interest rates further if necessary, but we maintain the view that the worst is yet to come for households with pressure from near-record high (and still rising) debt service expenses. We expect that will soften spending, push inflation lower, and keep the BoC to the sideline over the second half of this year,” she said.
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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