Canada’s Economy Expands in May as Retail Offsets OilTheophilos Argitis
Canada’s gross domestic product grew for a fifth straight month in May, as resilient consumer spending offset declining output by oil and gas producers.
Canada’s economy expanded 0.2 percent to an annualized C$1.58 trillion ($1.53 trillion), Statistics Canada said today in Ottawa, after a 0.1 percent gain in April. Economists surveyed by Bloomberg had forecast a 0.3 percent increase, the median of 20 responses.
The gain marks the longest string of monthly expansions since 2010, signaling a further revival from a slump in the second half of last year. Still, weaker output by the nation’s oil and gas producers, coupled with the impact of flooding in Alberta, a construction strike last month and recent concerns about the global market for potash, suggests the economy will struggle to match its 2.5 percent first-quarter gain, economists said.
“The resource sector, which had been doing much of the heavy lifting over the last two or three quarters, may have run its course,” Derek Holt, Scotiabank’s vice president of economics in Toronto, said in a telephone interview.
The Canadian dollar rose 0.2 percent to C$1.0287 per U.S. dollar at 1:14 p.m. in Toronto. Canadian bonds fell, with the yield on the benchmark two-year government note rising 1 basis points to 1.19 percent.
Oil and Gas
Canada’s economy probably grew by an annualized 1.6 percent in the second quarter, according to the median estimate of economists surveyedby Bloomberg News earlier this month. Estimates for the third quarter and fourth quarter are for 2 percent and 2.2 percent growth, respectively. Last year, the nation’s quarterly annualized growth averaged 1 percent.
Oil and gas producers saw a 2.2 percent drop in output in May, the agency said, led by a 7.4 percent decline from the nation’s oil sands.
Oil and gas, which was also down 2.7 percent in April for the largest two-month decline in two years, had risen at an average monthly pace of 1.3 percent between October and March as producers ramped up shipments to the U.S., taking advantage of new pipeline capacity and rebounding from temporary maintenance shutdowns that curbed output last year. Statistics Canada today cited maintenance activities for the decline in May.
Lower sales by oil and gas-related businesses offset a rise in manufacturing output, leading to a 0.3 percent drop in goods-related production. Factory output rose 0.3 percent during the month.
The gain in May was led by higher sales at retailing businesses, which recorded a 1.8 percent increase during the month, the biggest since November 2010. A 1.4 percent increase in wholesale trade was the largest gain for that industry since July 2011. Those two industries led a 0.5 percent increase in services-related output, the statistics agency said.
From a year earlier, the economy grew 1.6 percent in May, Statistics Canada said.
“This is indeed a positive sign, showing that Canada’s economy is on the right track,” Canadian Finance Minister Jim Flaherty said in an e-mailed statement.
A potential headwind to future economic growth may come from the nation’s potash production, after Russia’s OAO Uralkali, the biggest supplier of the commodity, said yesterday it decided to end production restrictions that underpinned global prices.
Falling potash volumes may have a “meaningful” impact on Canada’s output, CIBC economist Avery Shenfeld said in a note yesterday. Saskatchewan’s economy may grow half as quickly this year as previously projected as a result, Royal Bank of Canada economist Paul Ferley said in a separate report.
Third quarter results will “trade off a drop in potash activity against the trend climb expected in oil output,” Shenfeld said in a report today.
Potash was the fastest growing sector of the economy in the first five months of this year, expanding 31 percent, according to data released today by the statistics agency.