Canada tallies 0.2% rise in May GDP, with manufacturing rebounding

OTTAWA (Reuters) - Canada’s economy grew by a higher-than-expected 0.2% in May, the third increase in as many months, thanks to a rebound in manufacturing, Statistics Canada data showed on Wednesday.

FILE PHOTO: The city's industrial zone looms over residential neighborhoods in Hamilton, Ontario, Canada May 14, 2017. REUTERS/Chris Helgren

Analysts in a Reuters poll had predicted an increase of 0.1% in May following a larger-than-expected increase of 0.3% in April. Overall, 13 of the 20 industrial sectors monitored expanded in May, the national statistical agency said.

The Canadian dollar strengthened to 1.3135, or 76.13 cents U.S., after the May GDP data was released.

The latest Canadian economic data was released on the same day the U.S. Federal Reserve is scheduled to announce its latest interest rate decision, with markets anticipating a rate cut.

The Bank of Canada has held interest rates steady since October 2018 as it monitors Canadian economic data. Canada’s central bank is not expected to move for the rest of the year.

“Strong growth in the last several months underscores why the (Bank of Canada) has maintained a neutral policy bias even as the Fed is set to lower rates,” said Josh Nye, a senior economist with RBC Economics Research.

Brian DePratto, a senior economist with TD Economics, agreed, noting the current economic backdrop “should give the Bank of Canada some near-term comfort in ‘going it alone’ and holding is stance of monetary policy constant as its peers ease.”

On Wednesday, Statscan said durable manufacturing rose by 2.3%, more than offsetting the 1.7% drop seen in April. Meanwhile, the transportation equipment manufacturing sub sector experienced a growth of 5.7% after motor vehicle production returned to normal levels following some temporary plant shutdowns in April.

Canada’s construction industry also registered gains in May, rising 0.9% and recording its fourth jump in five months. Residential construction posted its strongest growth in more than a year, rising by 2.2% as construction of double, row and other multi-unit dwelling expanded.

However, contractions were felt within the mining, quarrying and oil and gas extraction industries, dropping by of 0.8% following a gain of 5.5% in April, thanks in large part to a decline in extractions from the oil sands.

Separate data from Statistics Canada showed that Canadian producer prices fell by 1.4% in June, the biggest decline in nearly two years, on lower prices for energy and petroleum goods. Raw materials prices dropped by 5.9%, the second consecutive monthly decline, spurred by continued trade uncertainties, including Canada’s ongoing dispute with China.

Additional reporting by Fergal Smith; Editing by Will Dunham