BUSINESS
07/31/2018 12:48 EDT | Updated 07/31/2018 12:48 EDT

Canadian Economy Roars Back To Life, But 'Negative Shocks' Are Ahead

The country is seeing very broad economic growth, but Trump's trade war could scuttle that.

Fireworks are visible from the Rideau Canal in Ottawa, with Parliament Hill and the Fairmont Chateau Laurier in the background. Canada's economy surprised many experts with an unusually strong showing in May.
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Fireworks are visible from the Rideau Canal in Ottawa, with Parliament Hill and the Fairmont Chateau Laurier in the background. Canada's economy surprised many experts with an unusually strong showing in May.

Canada's economy surprised many experts with a stronger-than-expected showing in May, according to new data from Statistics Canada — and it has everything to do with the crappy weather Canada saw this past April.

Economic output grew by 0.5 per cent in May, Statistics Canada said on Tuesday, well ahead of expectations of 0.1 per cent growth among economists polled by Thomson Reuters.

It was the fastest one-month economic spurt the country has seen in two years, according to calculations from the Globe and Mail. And it's much stronger than the 0.1-per-cent growth recorded a month earlier in April, when a late spring kept Canadian consumers hibernating.

"Canadians came out of hibernation in May, and the economy benefitted big-time," Bank of Montreal chief economist Doug Porter wrote in a client note.

"A rebound from weather-affected weakness in April exaggerates some of the underlying strength in May. But even so, this is a solid showing for growth."

The most widespread economic growth in 14 years

The growth was very widespread, with 19 of 20 economic sectors expanding during the month. That's the broadest expansion the country has seen since the summer of 2004, according to TD Bank senior economist Brian DePratto.

"It is unlikely that this pace will be sustained, however," DePratto wrote in a client note. "Just as the recovery from one-off shocks sent activity higher, further negative shocks will help swing the pendulum back in the other direction."

He expects those "negative shocks" to appear in the data for June and July, when the impact of tariff war between the U.S. and Canada will become visible in the data.

Earlier on HuffPost Canada:


That, combined with maintenance shutdowns in Canada's oil patch, "should act as headwinds to growth in the coming months," DePratto wrote.

While Canada will likely clock economic growth at a 3.1-per-cent annualized pace in the second quarter of this year, that will slow to a "more sustainable" pace of 1.5 per cent to 2 per cent by the end of this year, DePratto predicted.

Economists largely agreed that the strong numbers make another interest rate hike from the Bank of Canada likelier, though most don't expect that move to happen before October.

— With a file from The Canadian Press