MNI DATA IMPACT: Canadian May GDP +0.2%, Surpassing Forecasts>

By Greg Quinn

     OTTAWA (MNI) - Canada's gross domestic product grew 0.2% in May, 

beating economist forecasts for a second month on manufacturing 

and homebuilding.

     The expansion was faster than the 0.1% median estimate in an MNI 

economist survey. Manufacturing climbed 1.2% following April's 0.6% 

contraction as auto factories ended temporary shutdowns, and 

construction rose 0.9% led by residential work. The gains in both 

industries were the fastest in four months.

     The report suggests the economy will match or beat the Bank of 

Canada's prediction for growth at a 2.3% annualized pace for the second 

quarter, giving him more scope resist matching any rate cut from the 

U.S. Federal Reserve. Governor Stephen Poloz held his key rate at 1.75% 

earlier this month and gave no signal on the direction of the next move.

     Goods production rose by 0.6% for a second month in April, a sign 

that robust demand is helping companies overcome growing damage from the 

risk of a U.S.-China trade war. The GDP report showed broad-based gains 

with increases in 13 of 20 categories in Statistics Canada's report 

Wednesday from Ottawa.

     Mining activity climbed by 2.7% in May, the third consecutive 

increase. While oil and gas extraction fell 2.5% in May, that should be 

reversed in coming months as the province of Alberta eases production 

cutbacks it announced last year. Transportation equipment manufacturing 

rose 5.7% as auto factories returned to work after shutdowns.

     Housing showed strength again in May on top of the increase in 

construction, with the value added from real estate agents and brokers 

up 4.8%, the fourth gain in five months. Gains were led by Vancouver and 

Toronto, markets where policy makers used taxes and regulations to 

tackle signs those markets were overheating. The gain in construction 

was also led by a 2.2% rise in homebuilding, the strongest in more than 

a year. Non-residential construction fell 0.1%.

     Even with the faster-than-expected gain for May, growth still 

slowed from 0.3% in April and 0.5% in March. The May figures showed the 

first decline in wholesale sales in five months, as well as a decline in 

retailing. 

     The economy is also expected to face a broader slowdown in the 

second half of the year. Energy production may fade from a rebound in 

the early part of this year and consumer spending may be pinched by 

record debt loads. Business investment and exports are at the mercy of 

global trade tensions. 

     What is expected to keep the BOC on hold as other central banks 

move towards fresh stimulus is inflation around the bank's target of 2%. 

Record low unemployment is also finally generating some signs of faster 

wage growth. 

     Investors will now turn to Friday's report on Canada's merchandise 

trade balance, expected to fall back into deficit after a surprise 

surplus the previous month. Again, even modest deficits haven't been 

enough to prevent Poloz from holding or raising rates in the past few 

years as he sees the economy returning to near full capacity on a 

sustainable basis at last, more than a decade after the global financial 

crisis. 

--MNI Ottawa Bureau; +1-613-314-9647; greg.quinn@marketnews.com 

     [TOPICS: MACDS$,M$C$$$]