Canada: Economic activity flatlines in May; flash estimate points to mild expansion in June
GDP was flat in month-on-month seasonally-adjusted terms in May, which was a deterioration from April’s 0.3% increase but an improvement from Statistics Canada’s initial flash estimate of -0.2%. Looking at the details of the release, sharp contractions in construction and manufacturing offset an acceleration in the services sector. Construction output was dampened by strikes in Ontario, while manufacturing was hurt by chip shortages at car plants. In contrast, services activity was likely boosted by the evaporating impact of the pandemic. On an annual basis, GDP increased 5.6% in May.
A flash estimate for June estimated growth of 0.1%, driven by upturns in the manufacturing, construction and hospitality sectors. If confirmed, this would take the quarter-on-quarter expansion in Q2 to 1.1%.
On the reading and outlook, Randall Bartlett from Desjardins said:
“The May number and June flash did reinforce our view that growth momentum is slowing very quickly going into the second half of 2022. Ongoing substantial interest rate hikes by the Bank of Canada are the primary cause. Indeed, the weakness can be increasingly chalked up to interest-rate sensitive sectors like housing, but it risks becoming broader than that. And while we don’t expect a recession starting in Q3, we’re of the view that there are broadly even odds of a recession in Canada next year.”
FocusEconomics analysts project growth of 3.6% in 2022, which is down 0.2 percentage points from last month. In 2023, our analysts see growth easing to 1.8%.