This expansion of 2per cent GDP comes despite some headwinds in other sectors, notably retail, wholesale trade, and oil and gas, which have collectively dampened overall economic performance.
A significant contributor to May’s growth was the completion of the Trans Mountain pipeline expansion. The crude oil and pipeline transportation industry saw a notable increase of 1.5 per cent, reflecting the commencement of expanded pipeline operations. This development was marked by the departure of the first tankers carrying Western Canadian oil from the Port of Vancouver, which bolstered the sector’s output.
Economists observed that while the economic growth for May slightly surpassed expectations, the overall picture remains subdued. This has led to calls for a continued reduction in interest rates by the Bank of Canada. The most recent data suggests that economic growth slowed to 0.1 per cent in June. This deceleration was partially mitigated by gains in construction, real estate, and finance sectors, which were offset by declines in manufacturing and wholesale trade.
For the second quarter, Statistics Canada anticipates an annualized growth rate of 2.2 per cent. This figure indicates a slight improvement over initial forecasts but does not signal a robust economic recovery. CIBC’s chief economist noted that while there might be minor upward revisions to the second quarter GDP estimates, the data alone is unlikely to prevent further interest rate cuts. The anticipated rate adjustments are expected to align with ongoing inflationary trends.
The latest economic figures follow the Bank of Canada’s decision to lower its key interest rate for the second consecutive time. This move reflects a response to the weakening economic conditions that have prevailed in recent months. The central bank’s Governor, Tiff Macklem, highlighted that the rate cut was intended to stimulate growth, which has been Sluggish, particularly when accounting for population growth.
The Canadian labor market has also faced challenges, with high borrowing costs contributing to limited job opportunities, particularly for recent graduates and newcomers. The unemployment rate has been on the rise, reaching 6.4 per cent in June, underscoring the ongoing difficulties within the job market.
Looking ahead, the Bank of Canada is expected to implement another rate cut in September, a move anticipated by many forecasters. Despite the recent reductions, the benchmark interest rate remains at 4.5 per cent, which continues to exert pressure on economic growth.
In contrast, the U.S. Federal Reserve has reported progress in achieving its inflation targets and is nearing a potential cut in its key interest rate, marking a shift in monetary policy in the broader G7 context. This evolving economic landscape highlights the global interplay between inflation control and economic growth strategies.
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