The Honda CRV production line at a manufacturing plant in Alliston, Ont., on April 5, 2023.Cole Burston/The Canadian Press
Canada’s gross domestic product increased 0.3 per cent in April, matching market expectations, as growth rebounded in sectors including wholesale trade and manufacturing, and the economy likely expanded further in May, data showed on Friday.
Analysts polled by Reuters had forecast 0.3 per cent GDP growth in the month, after growth stalled in March.
The growth in April, fastest since the 0.5 per cent clocked in January, was driven by rebounds in wholesale trade, mining, quarrying, and oil and gas extraction and manufacturing sectors, Statistics Canada said.
In a preliminary estimate for May, Statscan said GDP was likely up 0.1 per cent, as increases in manufacturing, real estate related activities, and finance and insurance were partly offset by decreases in retail trade and wholesale trade.
This data could be revised when the next GDP numbers are announced on July 31.
“The slowing in May GDP growth suggests that the reacceleration in the inflation … reflected supply issues or volatility in the data, rather than demand pressures,” Andrew Grantham, senior economist at CIBC Capital Markets wrote in a note.
Money markets, which were betting for almost a 75-per-cent chance of a rate cut earlier this week, trimmed the chances to around 40 per cent after inflation data were released on Tuesday. After the GDP numbers were published, the bets slightly moved up to 45 per cent.
Friday’s data put the Canadian economy on track to exceed the Bank of Canada’s second quarter annualized growth forecast of 1.5 per cent. GDP rose 1.7 per cent in the first quarter, falling short of the bank’s 2.8-per-cent growth rate projection.
Canada’s inflation data showed consumer prices unexpectedly rose in May.
The central bank’s next rate announcement is on July 24, before which it will have the benefit of one more inflation reading, along with the jobs report for June.
Economists said with the GDP not moving the needle much in terms of rate cut bets, the coming inflation and jobs numbers become critical.
“If this trend [GDP] is repeated in the next jobs and inflation reports, data uncertainty alone could tip the BoC into holding,” Simon Harvey, head of FX analysis at Monex, said, referring to a likely pause in rate cuts in July.
The Canadian dollar pared early losses and firmed 0.11 per cent to 1.3686 against the U.S. dollar, or 73.07 U.S. cents.
In April, growth was recorded in 15 out of 20 sectors, the statistics agency said.
Retail trade, helped by food and beverage retailers and gasoline stations, was another top contributor of growth in April after two consecutive monthly declines, it said.
Construction and real estate and rental and leasing were among sectors that weighed on growth in the month.
Over all, both goods-producing and services-producing industries grew by 0.3 per cent in April.
The central bank trimmed its key policy rate for the first time in more than four years earlier in June, and said more cuts were likely if inflation continued to show it was on a sustainable path back down to the 2-per-cent target.