- Nick Exarhos, CIBC economist
The Canadian economy shocked markets, as the data showed a fifth negative GDP reading in a row. Statistics Canada reported that the economic output shrank 0.2% in May, after contracting 0.1% in the preceding month. Analysts, however, had expected a flat reading in the reported month. Measured on an annual basis, Canada's economy grew 0.5%, compared with the 1.2% recorded in April. The data increased chances that the economy slipped into recession in the first half of the year. The major drag came from Canada's manufacturing sector, which contracted 1.7%. Overall, goods-producing industries fell 0.6% in May, down for a fifth straight month. At the same time, the service-providing industries dropped 0.1% in May after growing for three consecutive months. Low oil prices, a falling Canadian Dollar and diminished exports have hit the economy hard this year.
The bleak data supported the Bank of Canada's July decision to slash its benchmark interest rate by another 25 basis points to 0.5% to cushion the economy in light of poor estimates. The central bank also downgraded its second quarter growth forecast from a positive 1.8% to a negative 0.5% as well as revised Q3 from 2.8% to 1.5%.
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