Canada’s economic expansion showed signs of moderation in May and June, pulling back from a strong start to the year amid high inflation and rising interest rates.
June manufacturing was on track for a slight increase of 0.1 per cent after stalling in May, Statistics Canada said on Friday. That followed three months of strong growth between February and April, which helped fuel a steady expansion in the second quarter, which the agency estimated at about 4.6% year-on-year.
The results paint a picture of an economy that has not been affected by the global slowdown in the first part of the year, but may be entering a period of much slower growth.
The Bank of Canada has raised its key interest rate by more than two percentage points since March to slow four-decade high inflation and is expected to raise it by at least another half a percentage point at its next policy decision in September.
The second-quarter growth number was even stronger than the 4 percent annualized pace estimated by the central bank earlier this month, and represented an acceleration from 3.1 percent growth in the first quarter.
“The Bank of Canada is still on track for another non-standard rate hike at its next meeting,” Andrew Grantham, economist at Canadian Imperial Bank of Commerce, said in a note to investors.
The Canadian dollar was little changed on the report, falling 0.2 percent to $1.2838 per U.S. dollar at 8:51 a.m. in Toronto trade. The yield on two-year Canadian government bonds rose about 4 basis points to 2.97 percent.
While the global economy has been hit hard by rising energy costs, Canada’s resource-based economy has benefited from increased oil, grain and gas prices. The strong pace in the first half also reflects the effect of reopening earlier this year after strict COVID-related lockdowns last winter.
Economists expect Canada’s growth rate to slow to below 2 percent annually in the second half of this year and into 2023.
In May, growth in service-producing industries was offset by declines in goods-producing sectors, particularly construction and manufacturing, the statistics agency said. The construction sector was affected by widespread strikes during the month.
Preliminary information for June shows a recovery in construction and manufacturing.
A median estimate in a Bloomberg survey of economists had expected a 0.2 percent decline in May.
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