MNI: Canada's Economy Rebounds In May After April Stall

Canada's economy rebounded in May with 0.4% growth after stalling in April, suggesting momentum that led the central bank to unexpectedly hike interest rates earlier this month is continuing.

Gross domestic product in May was led by manufacturing, real estate and the return of federal government workers after a strike in April, according to Statistics Canada's flash estimate Friday from Ottawa. The agency's official figure for April showed GDP was little changed as goods production gained 0.1% and gains in real estate services were offset by the government strike. 

While the April GDP figure fell short of economist forecasts for a 0.2% gain, StatsCan also raised its estimate of March GDP to a 0.1% increase from an earlier reading that output was little changed. The economy grew 1.7% over the past year, defying investor predictions Canada is heading for a recession.

The composition of GDP growth will likely concern central bank officials as they consider whether to hike rates again at a July 12 decision. Gains in real estate suggest demand continues to run ahead of supply even after Governor Tiff Macklem hiked borrowing costs eight straight times through January, a big reason he came off the sidelines with a fresh hike on June 7. Still, bets on a hike faded Tuesday after the inflation rate slipped a full percentage point, though core rates still remain almost 4%, well above the Bank's 2% target.

StatsCan said 11 of 20 industries posted gains in April including a 1.2% rise in mining and energy, while public administration declined 1%. Real estate and leasing grew for a sixth straight month, with the 0.5% gain the fastest since December 2020. 

The economy grew at a 3.1% annualized pace in the first quarter and the Bank of Canada has predicted a slowdown to 1% in the second, a forecast that will be updated alongside the interest-rate decision next month. Officials at the last decision laid out a host of upside risks after debt-fueled consumer spending led the first-quarter expansion, and underlined the risk inflation will get stuck above their 2% target.