Output rose 0.1 percent to an annualized C$1.29 trillion ($1.28 trillion), following gains of 0.3 percent in April and 0.1 percent in March, Statistics Canada said today in Ottawa. The May increase was less than the 0.2 percent forecast by the median of a Bloomberg economist survey with 23 responses.
Slowing growth suggests Bank of Canada Governor Mark Carney, who has kept the central bank’s key lending rate at 1 percent since September 2010, the longest pause since the 1950s, probably won’t raise borrowing costs any time soon. Carney cut his second-quarter growth forecast earlier this month to 1.8 percent, and said weaker global demand would curb the expansion through next year.
“It’s tough to be able to see the bank raise rates any time soon,” said Benjamin Reitzes, an economist at BMO Capital Markets in Toronto, who expects the central bank will continue its rate pause for another year.
The Bank of Canada is relying on business investment and consumer spending for economic growth in what it calls the slowest export recovery since World War II.
Canada’s dollar slipped 0.1 percent to C$1.0028 per U.S. dollar at 10:33 a.m. in Toronto. One Canadian dollar buys 99.72 U.S. cents.
Retailing advanced 0.7 percent in May, after declining 0.9 percent in April. Wholesale sales rose a sixth straight month, by 0.1 percent. Finance and insurance rose 0.5 percent, led by trading on stock exchanges and by personal lending, Statistics Canada said.
Mining and oil and gas rose 0.6 percent in May following April’s 2 percent increase. Crude oil producers led the increase in May following “maintenance and production difficulties” in February and March, according to the report.
Policy makers in Canada have said they may need to raise rates because the world’s 10th largest economy is close to full output, at a time when other central banks are examining new stimulus.
European Central Bank President Mario Draghi said last week that policy makers will do whatever is needed to preserve the euro as the region’s sovereign and bank debt crisis persists, while U.S. Federal Reserve Chairman Ben S. Bernanke told lawmakers July 17 the central bank is ready to take further action to boost the recovery.
“Unless disaster strikes it looks like the economy is going to grow,” Steve Ambler, an economics professor at the Université du Quebec à Montréal and former special adviser at the Bank of Canada, said before the report. “The Bank of Canada should still aim to gradually increase rates to something more normal,” he said.
Manufacturing fell 0.5 percent in May, as durable goods such as machinery and electronics dropped 0.6 percent. Construction declined 0.2 percent and the output of real estate agents and brokers fell 4.8 percent, the first decline in four months, Statistics Canada said.
“We are obviously watching the global economic situation very closely, and we think in the next couple of quarters it will continue to be challenging,” James Lopez, chief executive of lumber maker Tembec Inc. (TMB), said on a July 26 conference call.
Transportation and warehousing declined 0.5 percent in May as railway service was disrupted, the report said. Canadian Pacific Railway Ltd. (CP) had a nine-day strike that month that ended with back-to-work legislation.
From a year earlier, the economy grew 2.4 percent in May, according to the report. Canada’s economy is on pace for second- quarter growth of about the 1.8 percent annualized pace the central bank estimated earlier this month according to David Tulk, chief Canada macro strategist at Toronto-Dominion Bank (TD)’s TD Securities unit.
“There is little pressure for the Bank of Canada to take its overnight rate higher until the international environment improves,” Tulk wrote in a client note.
Statistics Canada also said today its industrial product price index fell 0.3 percent in June from May. Economists forecast a 0.1 percent decline in a survey with nine responses.
The raw-materials price index fell 4 percent in June, the fifth straight decline, faster than the 3 percent decrease predicted in a Bloomberg economist survey.
Industrial prices rose 0.4 percent from a year earlier while raw-materials costs fell 11.7 percent, suggesting factory profit margins widened.
To contact the reporter on this story: Greg Quinn in Ottawa at firstname.lastname@example.org