Manufacturing Drives Canada’s Third Straight Monthly GDP Gain

(Bloomberg) -- The Canadian economy expanded for a third-straight month in May on increases in manufacturing and construction, reinforcing the view the central bank can remain on the sidelines for now.

Gross domestic product rose 0.2%, after a 0.3% gain in April, Statistics Canada said Wednesday from Ottawa. The figure topped the 0.1% gain expected in a Bloomberg survey of economists.

The result will relieve pressure on the Bank of Canada to follow other central banks in easing policy. The Federal Reserve is widely expected to cut rates for the first time in a decade later on Wednesday.

Canada’s currency appreciated after the report, reversing an earlier loss and trading 0.2% higher at C$1.3130 against its U.S. counterpart at 8:32 a.m. in Toronto.

Key Insights

• The better-than-expected result will support estimates for second-quarter growth closer to 3%, versus the 2.3% predicted by the Bank of Canada at its latest rate decision this month.
• Wednesday’s report shows Canada’s recovery continues apace, after growth virtually stalled at the end of last year. May’s gain caps the strongest three-month increase since the middle of 2017.
• After oil production led the expansion in March and April, the story in May was more about manufacturing, which climbed 1.2%, and construction, up 0.9%.

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• Real estate showed strong gains, supporting the narrative of a recovering housing market, with the agents and brokers subcategory up 4.8% in May, the fourth gain in five months.
• The gains were relatively broad-based, as 13 out of 20 sectors recorded higher output.
• In a separate report, Statistics Canada said industrial product prices fell 1.4% in June, versus an estimate in a Bloomberg survey for a 0.2% drop. Prices for raw materials fell 5.9%, compared with a forecast of a 3% decline.

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Chris Fournier in Ottawa at cfournier3@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Stephen Wicary

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