Economic growth blows past expectations in May, powered by energy industry

OTTAWA – Economic growth in the country blew past expectations in May, powered by the energy sector, raising expectations that the Bank of Canada will raise interest rates again this fall.

Statistics Canada said Friday that real gross domestic product grew by 0.6 per cent for the month. Economists had expected an increase of 0.2 per cent, according to Thomson Reuters.

The Bank of Canada raised its key interest rate earlier this month for the first time since 2010. The central bank’s target for the overnight rate sits at 0.75 per cent.

TD Bank senior economist Brian DePratto said the economic performance was healthy across pretty much every industry.

“This is only going to strengthen the case for them,” he said of the central bank.

The Bank of Canada’s next opportunity to raise its key rate is in September, but DePratto suggested it would wait until its October rate announcement when it will also update its economic forecasts in its monetary policy report.

Compared with a year ago, the economy soared 4.6 per cent, noted Bank of Montreal chief economist Doug Porter.

“While that very impressive headline comes with a caveat – last May was depressed by the Alberta wildfires – even excluding that factor leaves the underlying growth trend well above three per cent,” Porter wrote in a note to clients.

He said the latest report puts Canada on track for roughly three per cent GDP growth this year, more than a percentage point above where consensus expectations were just six months ago.

“While the blow-out headline advance no doubt exaggerates the underlying strength in growth, the fact is that every single major surprise for the economy this year has been to the upside,” Porter said.

Statistics Canada said goods-producing industries rose 1.6 per cent, driven by a 4.6 per cent increase in the mining, quarrying, and oil and gas extraction sector.

The oil and gas extraction subsector grew 7.6 per cent, with non-conventional oil extraction rising 13 per cent due to a rebound in activity after a fire at the Syncrude Mildred Lake upgrader in mid-March that curtailed production. Conventional oil and gas extraction gained 3.2 per cent.

Service-producing industries increased 0.2 per cent, led by finance and insurance services.