Canada GDP Fell 0.3% in May, Expected to Rise in June -- Update

By Kim Mackrael

OTTAWA--The Canadian economy likely returned to growth in June following a second consecutive contraction in May, as restrictions that were meant to contain a third wave of Covid-19 infections continue to ease across much of the country.

Canada's gross domestic product, which tracks broad activity in the economy, fell 0.3% in May from the previous month to a seasonally adjusted 1.971 trillion Canadian dollars, or the equivalent of about $1.584 trillion, Statistics Canada said Friday. The result for May matched an earlier estimate provided by the data agency.

In April, GDP fell by a revised 0.5%, which was more than the 0.3% contraction that was previously reported.

Meanwhile, Statistics Canada said an early estimate for June suggests a 0.7% month-over-month increase in GDP, as easing public health measures allowed for growth in the retail trade and accommodation and food services sectors. For the second quarter as a whole, the data agency said it anticipates a 2.5% annualized increase.

"Sectors of the economy that were most affected by the virus and associated shutdowns understandably were the big winners from the reopening in June," CIBC Capital Markets economist Royce Mendes said. "With virus cases generally low across the country, the economy has some open road to recover even more ground this summer."

The early estimates for June and for the second quarter of the year are considered preliminary, and may be revised next month. With the June data, total economic activity in Canada is about 1% below its pre-pandemic level, the data agency said.

Canada's early vaccine rollout was slow compared with the U.S. and U.K., contributing to a third wave of Covid-19 cases during the spring that resulted in a return to tough economic restrictions. Vaccinations picked up sharply in the late spring and early summer, however, and more than 57% of Canadians are now fully vaccinated, compared with 49% of Americans and about 55% of U.K. citizens. Economic restrictions have continued to ease this summer.

Despite the high vaccination rate in Canada and a low Covid-19 caseload so far this summer, economists warned that a resurgence in infections, and a return to another round of economic restrictions, is still possible.

"It may not be smooth sailing for the rest of the recovery," TD Bank economist Sri Thanabalasingam said, noting that the Delta variant of the virus has led some countries to tighten restrictions once again. "Economic gains are still very much tied to the whims of Covid-19."

The Bank of Canada said earlier this month that the spread of Covid-19 variants is a growing concern. Still, the central bank anticipates a strong pickup in domestic growth during the second half of this year, and recently pulled back further on its large-scale asset purchasing program, widely known as quantitative easing.

The Statistics Canada report for May said goods-producing industries contracted by 0.4%, while services-producing industries declined 0.2%.

Construction decreased 2.3% in the month, following five consecutive monthly advances. Retail trade was down 2.7% after a 5.7% decline in the previous month, amid store closures and limits on operating hours and capacity. The mining, quarrying and oil and gas extraction sector advanced 2.0% in the month.

Write to Kim Mackrael at [e-mail]

(END) Dow Jones Newswires

07-30-21 1005ET