Canada's GDP likely to surpass central bank's second-quarter forecast
Canada's GDP likely to have grown by 2.2% in Q2
GDP grew by 0.2% in May, beating expectations
Growth rate in June seems to be at 0.1%
Updates with economist comments, context
By Promit Mukherjee and Ismail Shakil
OTTAWA, July 31 (Reuters) -Canada's economy likely gathered some momentum in the second quarter and surpassed Bank of Canada growth estimates, data showed on Wednesday, as high interest rates failed to dampen an uptick in manufacturing and oil transportation.
However retail and wholesale sales continue to be subdued, weighing on growth.
Canada's gross domestic product grew by 0.2% in May, Statistics Canada said, adding that a preliminary estimate for June shows the economy probably expanded by 0.1%, taking the quarterly economic growth rate to 2.2%.
"Canada's economy is still walking that fine line of struggling to keep upright, but just staying out of serious trouble, consistent with continued, measured interest rate cuts," Doug Porter, chief economist at BMO Capital Markets, wrote in a note.
In the previous quarter growth was 1.7% and Bank of Canada forecasts a growth of 1.5% in the second quarter ended June 30.
The monthly GDP data and the calculation for quarterly growth are based on industrial output, while exact quarterly numbers, to be released on Aug. 30, will be based on GDP by income and expenditure, and hence could vary.
Analysts polled by Reuters had estimated GDP to grow by 0.1% in May.
The Canadian dollar firmed after the GDP numbers were released, with the loonie CAD= trading up 0.25% to 1.3812 against the U.S. dollar, or 72.40 U.S. cents. Bond yields for Canada's two-year government bonds CA2YT=RR rose by 1.3 basis points to 3.514%.
BENCHMARK RATE
Money markets are betting an almost 86% chance of another 25 basis point rate cut in the bank's next monetary policy announcement on Sept. 4, up from 60% a week ago, but lower from around 92% seen on Tuesday.0#BOCWATCH
The bets have not moved much after the release of the data.
The central bank lowered its benchmark rate for a second straight month last week, and indicated its focus was shifting to boosting the economy.
The bank expects growth to pick up in the second half of 2024, led by stronger exports and a recovery in household spending as borrowing costs ease.
Growth in May was led by the manufacturing sector, which posted its largest gain since January 2023, and educational services, health care and social assistance, and public administration.
The opening of the expanded Trans Mountain pipeline in May also contributed to growth, helping the pipeline transportation sector post a 0.6% gain in the month, Statscan said.
Gains were partly offset by contractions in retail trade and wholesale trade, as well as the mining, quarrying and oil and gas extraction sectors.
"The Canadian economy is feeling the pinch from higher interest rates, particularly impacting the retail sector," said Andrew DiCapua, senior economist at Canadian Chamber of Commerce, even though manufacturing and pipeline transportation cushioned some of the impact.
This growth might be influenced by seasonal factors rather than a shift in momentum, he said.
Overall, 15 of 20 sectors expanded in May, with Canada's goods-producing sector, which accounts for a quarter of total GDP, gaining 0.4% and the services sector posting a 0.1% increase.
The economy in the U.S., Canada's biggest trading partner, grew faster than expected in the second quarter, with its GDP increasing at a 2.8% annualized rate, data showed last week.
Canada's GDP for May beats expectations and grows by 0.2% https://reut.rs/3Wsk7t5
Reporting by Promit Mukherjee and Ismail Shakil; Additional reporting by Dale Smith; Editing by Louise Heavens and David Holmes
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