Economic growth ticks higher in May

Fri Jul 30, 2010 10:56am EDT
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By Ka Yan Ng

OTTAWA (Reuters) - Growth in Canada's economy edged up in May after stalling unexpectedly in April, helped by strength in the goods-producing sectors led by oil and gas extraction, while the service sector faltered for a second straight month.

Real gross domestic product ticked up 0.1 percent in May, Statistics Canada said on Friday, matching market views and in line with expectations that economic growth in the second quarter slowed after the stunning expansion in the first quarter.

Statistics Canada did not revise its flat April GDP report, which had come as a shock after seven consecutive months of expansion.

"While May's modest GDP growth was a step up from the prior month, it's clear that Canada's economic momentum is ebbing," said Benjamin Reitzes, an economist at BMO Capital Markets.

"Even so, the details of the report weren't entirely soft, with most sectors seeing modest gains outside of construction and wholesale."

The Canadian dollar erased early gains and fell against the U.S. dollar after the figures were released, but analysts said it was more likely a reaction to slower-than-expected growth in U.S. second-quarter GDP. U.S. GDP figures were also released on Friday morning.

Analysts said the Canadian figures should keep the Bank of Canada on track to raise interest rates on September 8. Markets are pricing in roughly a 64 percent chance of a quarter-point increase in benchmark rates then, according to Friday's yields on overnight index swaps, which reflect expectations for the policy rate.

Market views diverge for the rest of the year with some expecting the central bank to take a break from rate hikes.   Continued...

<p>A container ship departs Burrard Inlet in Vancouver, British Columbia in this March 6, 2009 file photo. REUTERS/Andy Clark</p>