Canada’s economy contracted by 0.1% in May, matching analysts’ forecasts, according to data released Thursday by Statistics Canada. The dip was largely driven by a sharp decline in retail activity, which fell 1.2%, marking one of the largest sectoral declines for the month. Retail performance weakened across seven of twelve subsectors.<\/p>\n\n\n\n
Despite the May contraction, preliminary estimates suggest a potential 0.1% GDP rebound in June. If confirmed, this would result in an annualized 0.1% growth for the second quarter, contradicting previous projections of a quarterly economic contraction.<\/p>\n\n\n\n
Overall, the services-producing industries, which comprise about 75% of GDP, showed no growth in May. The slump in retail was balanced by gains in transportation and real estate. In contrast, goods-producing industries fell slightly, pulled down by a 1% decline in the mining, quarrying, and oil and gas extraction sectors.<\/p>\n\n\n\n
Manufacturing provided a bright spot, growing 0.7% in May after a 1.8% drop in April. This rebound was largely due to inventory accumulation, signaling some stabilization after recent trade-related disruptions.<\/p>\n\n\n\n
The Bank of Canada held its policy rate steady at 2.75% earlier this week and projected a 1.5% economic contraction for the second quarter, mainly due to a steep 25% decline in exports. The latest GDP estimate now calls that outlook into question. While the preliminary June data may reduce pressure on the BoC to cut rates in September, the final decision is expected to hinge on upcoming inflation and labor market data.<\/p>\n\n\n\n
Some economists remain cautious. CIBC\u2019s Andrew Grantham warned that quarterly GDP is measured differently than monthly data, relying on expenditure and income figures rather than industrial output. Desjardins\u2019 Royce Mendes added that domestic and trade-related uncertainties will likely persist and could still push the BoC toward monetary easing this fall.<\/p>\n\n\n\n
Canada\u2019s economy grew 2.2% in the first quarter as exporters rushed to fulfill orders ahead of U.S. tariffs. However, the imposition of those tariffs in March has since weighed heavily on trade volumes and industrial output.<\/p>\n\n\n\n
The Canadian dollar weakened by 0.11%, settling at 1.3842 per U.S. dollar. Market expectations for a rate hold at the BoC\u2019s September 17 meeting increased to 89% following the GDP release, signaling a shift in sentiment.<\/p>\n\n\n\n
Meanwhile, Canada and the U.S. continue to engage in trade negotiations with the aim of de-escalating tariff disputes. Talks are ongoing, but officials have signaled that meeting the current deadline may be unlikely.<\/p>\n\n\n\n
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