Growth in service-producing industries was offset by a decline in goods-producing industries, the federal agency said.
RBC’s deputy chief economist, Nathan Janzen, said the economy was facing long-term production capacity constraints, in part due to persistent labor shortages.
“We expect growth to slow, but part of that is because the current economy is incredibly strong,” Janzen said, noting that the economic recovery from the pandemic has been much faster than expected. .
A preliminary estimate of second-quarter GDP points to annualized growth of 4.6%, versus 3.1% for the three months of the year.
After taking a hit at the start of the pandemic, real GDP surpassed the pre-pandemic level in November 2021.
“We have reached a very strong point in the economic cycle, earlier than expected. But the challenge from there is “it’s just not sustainable,” he said.
The strength of the Canadian economy will have an impact on the Bank of Canada’s next decision on key interest rates, which aims to curb high inflation.
Earlier this month, the central bank raised its key rate by one percentage point, the largest single rate hike in more than 20 years.
CIBC senior economist Andrew Grantham said strong annualized growth in the second quarter means the Bank of Canada will likely go ahead with another oversized rate hike in September.
“This strong growth, combined with the details of today’s data that suggest supply constraints, rather than slowing demand, were holding back overall growth, means the Bank of Canada is still on track to offer another non-standard rate hike at its next meeting,” Grantham said in an email.
The Bank of Canada will make its next interest rate announcement on September 7th.
RBC forecasts two consecutive quarters of negative growth next year, which would meet the definition of a technical recession. However, Janzen said the slowdown is expected to be moderate and given early signs that global inflation pressures are easing, the Bank of Canada could start reversing rate hikes next year.
With the inflation rate at 8.1%, its highest level in 39 years, the central bank said it would continue to raise the cost of borrowing to reduce demand in the economy, hoping to bring down inflation without triggering a recession.
Janzen said he expects a half-percentage-point rate hike in September, with the Bank of Canada possibly taking its main interest to a high of 3.25% before starting to reverse its rate hikes. rate.
According to the report released on Friday, the largest declines in May were recorded in the construction and manufacturing sectors, while transportation and warehousing recorded the largest gains.
Construction workers’ strikes in Ontario in May led to project delays, according to Statistics Canada. However, construction activity remained well above pre-pandemic levels.
Manufacturing contracted for the first time in eight months as motor vehicle manufacturing was hampered by a shortage of semiconductor chips.
Gains in transportation were boosted by growth in air transportation, which rose 14.1%.
The results are better than expected. StatCan’s preliminary estimate suggests the economy contracted 0.2% in May.
On Thursday, the U.S. Commerce Department said the U.S. economy contracted for a second straight quarter, but CIBC economists expect growth to rebound for the rest of the year.