E-Sight Weekly July 29: Canada’s Economy at a standstill? GDP sees no growth in May 2022

Canada’s real gross domestic product (GDP) remained flat in May, posting 0.0% growth, following a 0.3% increase in April 2022. While growth in services-producing industries were up 0.4%, this was offset by a 1% decline in goods-producing industries.

Among services-producing industries, transportation and warehousing was up 1.9%, its fourth consecutive monthly increase. This was supported by strong growth in air transportation, which was up 14.1% as a result of increased movement of passenger and cargo. Urban transit systems also jumped 8.9% drawing to an uptick in commuters returning to in-person work. This is the first time since the series started in 1997 that the sector increased at such a rate and for such a lengthy period. However, the sector’s GDP still remains about 7% below its pre-pandemic level. The accommodation and food services sector rose 1.9%, also up for a fourth month in a row, while the wholesale sector grew 0.7% following three months of consecutive declines.

Looking at the goods-producing industries, the story is much more negative. After seven months of growth, the manufacturing sector fell 1.7%, owing to declines in both durable-goods and non-durable goods. Contractions in motor vehicle and miscellaneous manufacturing more than offset gains in 6 out of 10 subsectors, resulting in a 1.7% decrease in durable goods manufacturing. Reduced motor vehicle (-21.2%) and motor vehicle parts (-1.2%) manufacturing contributed the most to the decline as the sector remains heavily affected by the ongoing semi-conductor chip shortage. Similarly, non-durable goods manufacturing was set back 1.7% in May, with reduced output in chemical manufacturing and petroleum and coal products contributing the most to the decline.

GDP in the construction sector dropped 1.6% in May, as strikes among unionized workers in Ontario delayed numerous construction projects. Residential building construction declined for the second consecutive month, contracting 1.9% following a decline in construction of new single-family detached houses and apartments. At the same time, non-residential building construction slumped by 0.4%, the first decline in six months. Engineering and other construction activities contracted 2.0%, ending a 17-month streak of uninterrupted growth. Further, repair construction decreased by 1.4%, owing to declines in both the residential and non-residential repair activities.

Preliminary data suggest indicates that real GDP increased 0.1% in June as output increased in construction, manufacturing, and accommodation and food services. On a quarterly basis, this suggests that real GDP by industry increased by 1.1% in the second quarter of 2022. While this is good news, it does not negate from the global economic situation. Overall, we believe that high inflation and rising rates will continue to take some of the wind out of the sails of the economic recovery and a recession remains a strong possibility.

Categories: Canadian Economic Outlook, E-Sight, Economics, Gross Domestic Product

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