Canada GDP Roars in May -- 2nd Update

By Paul Vieira Features Dow Jones Newswires

The Canadian economy grew at a surprisingly robust pace in May, led by energy and manufacturing, a result sure to reinforce market expectations of another rate rise this year from the Bank of Canada.

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Canada's gross domestic product, or the broadest measure of goods and services produced in an economy, climbed 0.6% in May from the previous month, to 1.73 trillion Canadian dollars ($1.38 trillion), Statistics Canada said Friday. This marked the seventh straight monthly gain in economic output, a feat last achieved in 2010.

Traders had anticipated a smaller 0.2% rise in Canadian GDP, according to economists at Royal Bank of Canada.

"There appears to be no holding back the Canadian economy," said Brian DePratto, economist at TD Bank, of the May report.

On a one-year basis, the economy grew 4.6% in May, or the fastest pace in nearly two decades. In May of last year, the economy contracted steeply due to wildfires in western Canada that forced the shutdown or curtailment at energy-production plants.

Fourteen of the 20 sectors tracked posted month-over-month advances. Overall, the goods-producing sector drove the surprise result, climbing 1.6% in May, while the services component climbed 0.2%.

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The better-than-expected performance in May comes weeks after the Bank of Canada opted to raise its benchmark interest rate by a quarter-percentage point, to 0.75%, marking the first rate increase in seven years. The central bank cited an improving economy that is soaking up unused labor and production capacity at an accelerated pace. It added that growth is broadening on an industrial and regional basis.

"The fact is that every single major surprise for the economy this year has been to the upside," said Doug Porter, chief economist at BMO Capital Markets. "With this powerful momentum, even if some of it is a passing phase, it will take a lot to knock the Bank of Canada off its gradual tightening path."

Bank of Canada watchers generally expect at least one more rate increase in 2017 and possibly more next year.

Canada's GDP rose 3.7% annualized in the first quarter, or tops among Group of Seven developed economies. The Bank of Canada forecast a 3% expansion in the second quarter. Mr. Porter said following the May report, second-quarter GDP growth is now on track to hit 3.5%, and the economy as a whole could expand 3% in 2017.

Meanwhile, the Commerce Department released preliminary second-quarter GDP data, and they indicated that U.S. economic growth accelerated in the second quarter, rising at a 2.6% annual rate.

In the May GDP report, Statistics Canada said the energy sector rose 4.4% from the previous month, partly attributable to a rebound in activity at an upgrader that was forced to shut down earlier this year due to a fire.

Manufacturing rose 1.1% on increased production of motor vehicles and parts, and industrial machinery.

Financial services grew 0.9%, on increased lending activity. Retail and wholesale trade also posted strong results, rising 0.9% and 0.7%, respectively, in May.

One notable sector that weighed on results was construction, which declined 0.6% in May from April. The data agency attributed the steep fall to a strike by unionized construction workers in French-speaking Quebec.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

July 28, 2017 09:38 ET (13:38 GMT)