The Canadian economy avoided a downturn in May

Statistics Canada reported Friday that the country’s real GDP remained unchanged in May after expanding 0.3% in April.

The agency said the growth in industries producing services was offset by a decline in industries producing goods.

Royal Bank Deputy Chief Economist Nathan Janzen said the economy faces long-term constraints on production capacity, in part due to persistent labor shortages.

We expect growth to slow, but this is in part because the current economy is incredibly strong.Janzen said, noting that the economic recovery from the pandemic has been much faster than expected.

Preliminary estimate of Gross domestic product For the second quarter it reports annual growth of 4.6%, compared to 3.1% for the first three months of the year.

After being hit hard at the beginning of the epidemic, he Gross domestic product The real one exceeded the pre-pandemic level in November 2021.

We hit a very strong point in the economic cycle earlier than expected. But the challenge is there [est] can not continueHe said.

The strength of the Canadian economy will have implications for the upcoming Bank of Canada decision on its key interest rate, as it is aimed at curbing high inflation.

Earlier this month, the central bank raised its key rate by a full percentage point, marking its largest single increase in more than 20 years.

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CIBC economist Andrew Grantham said he believes strong annual growth in the second quarter should increase the likelihood that the Bank of Canada will go ahead with another rate hike in September.

This strong growth combined with details of today’s data, which indicate that supply constraints, rather than slowing demand, are hampering overall growth, means that the Bank of Canada is still on track to announce another non-record rate hike at its next meeting.Mr. Grantham argued in an email.

The Bank of Canada will announce the next interest rate on September 7.

Royal Bank expects negative growth for two consecutive quarters next year, which would meet the definition of a technical recession. However, Janzen noted that the slowdown should be moderate. Additionally, given the first signs of easing global inflationary pressures, the Bank of Canada could begin to reverse its rate hike as early as next year.

With an annual inflation rate of 8.1%, its highest level in 39 years, the central bank has indicated that it will continue to raise the cost of borrowing to reduce demand in the economy, hoping to reduce inflation without causing a recession.

Janzen said he expects to raise rates by half a percentage point in September, and believes the Bank of Canada will eventually raise the key rate to 3.25% before starting to reverse its hikes.

A decline in the construction and manufacturing sectors

According to the report released on Friday by Statistics Canada, the largest decline in May was recorded in the construction and manufacturing sectors, while the transportation and warehousing sector recorded the largest gains.

The Federal Agency continued strikes by construction workers in Ontario in May delayed completion of projects. However, construction activity remained well above pre-pandemic levels.

Manufacturing was contracted for the first time eight months ago as car construction stalled due to a shortage of semiconductor chips.

Gains in the transport sector were boosted by growth in air transport, which rose by 14.1%. These results came in better than expected since Statistics Canada’s preliminary estimates indicated that the economy contracted by 0.2% in May.

On Thursday, the US Department of Commerce reported that The US economy contracted in the second quarterSame as in the previous quarter, but CIBC economists expect a rebound in growth for the rest of the year.