Canadian Gross Domestic Product, May 2010

Date: July 30, 2010

Canadian Gross Domestic Product, May 2010

Source: Statistics Canada

Link to Release: http://www.statcan.gc.ca/daily-quotidien/100730/dq100730a-eng.htm

Summary: Canada’s real Gross Domestic Product (GDP) edged up 0.1 per cent in May compared to June, which amounts to 1.5 per cent on an annualized basis. This small increase followed virtually no growth in April. While the GDP contribution from the goods producing sector climbed 0.6 per cent during the month, the service sector contribution fell 0.1 per cent. The service sector dip was due to lower activity in wholesale trade and by real estate agents and brokers, where activity was down 11.3 per cent. The construction component of GDP also fell 1.6% in May, led by a 3.8% drop in residential construction.

Analysis: Following seven months of very strong economic growth in Canada, the April and May GDP results were certainly below expectations. These less than stellar results are calling into question most forecasts for second quarter GDP, including the Bank of Canada’s revised forecast of a 3.0 per cent annualized rate of growth. For this forecast to be realized, annualized GDP growth in June would have to be approximately 8.0 per cent, or one of the strongest monthly rates of growth on record. Lower than expected GDP growth may suggest that that future consumer price growth (inflation) may not be as strong as currently forecast. Given that the Bank of Canada bases its target for interest rates on future inflation expectations, it is possible that the pace at which the Bank raises its target for the Overnight Lending Rate may turn out to be slower than expected.

Source: Toronto Real Estate Board

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