Canada: May Real GDP - Soft and Softer
Canada: May Real GDP - Soft and Softer Canadian real GDP slides 0.11% M/M Goods production hit, services production soft
Canadian real GDP posted a 0.1% contraction in May, coming in below the consensus expectation of an increase of 0.2%. After having recorded a gain of 0.4% in April, Canadian economic activity edged down in May, the fourth drop in six months. A significant decline in mining and oil & gas extraction (-1.2%) played a role in this weak result. However, the weakness was not entirely concentrated in that sector. Nearly every other goods-producing industry (construction, utilities, forestry) also posted declines. Each sub-component of construction (residential, non-residential, and engineering & repair) declined, and similarly for mining, oil & gas. Manufacturing activity was essentially flat on the month with a 0.08% reading. With no support from the goods side of economic activity, which is nearly 30% of real GDP, services were expected to offset this weakness but did not fare much better as a whole, eking out a miniscule 0.04% gain. Within services, activity retreated in financial & insurance (-0.53%) and wholesale trade (-0.26%). Most other services industries recorded modest enough gains to hold up service activity (as a whole) flat.
This report essentially provided little in the way of good news, but is consistent with our cautious view of Canadian economic performance in the current context: energy cost pressures sliming non-resource margins, weakness in goods-industries, particularly export-oriented manufacturing, accompanied by a weakening in residential construction activity. Meanwhile, service industries are still growing but are beginning to feel the knock-on effects of slower wealth and employment growth. Assuming no growth in real GDP in June would leave second quarter growth at 0.4% (Q/Q annualized), bang-on our base-case forecast issued in mid-June. This is slightly lower than the Bank of Canada’s (BoC) 0.8% forecast as of their July MPR Update, but not nearly weak enough to warrant a revision in the BoC’s neutral stance on rates. The inflation-adjusted level of the BoC’s 3% nominal overnight rate is now close to being negative, which is arguably accommodative enough. As excess supply builds up slowly in the coming quarters, inflationary pressures should ease, which weakens the case for a near-term hike in interest rates in the face of a temporary rise in headline inflation. As a result, we are still comfortable with the view that the BoC will remain on the sidelines until the second half of next year.
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
No comments yet.
Sorry, the comment form is closed at this time.