May 2022: Canada’s economy slows down slightly due to decline in oil sector

Following a strong beginning of 2022, Canada’s economic growth slowed down slightly in May, restrained by a decrease in oil production.

According to Statistics Canada’s preliminary data, gross domestic product was down by 0.2% last month, as output fell in oil and gas, manufacturing and construction segments. Such results followed an increase of 0.3% reported in April and 0.7% – in March.

Although the GDP decline may be unexpected, it will still hardly change the broader growth trend and won’t stop the central bank from keeping its aggressive interest rate hikes approach. Bloomberg calculations show that Canada’s economy is on its way to an annual growth of almost 4% in the second quarter even without June’s flat numbers.

Canada’s economic growth is expected to exceed the results of many advanced economies in 2022 – partially because the country won’t be negatively affected by Ukraine crisis due to its commodities sector.

The high demand combined with 40-years high inflation has made the Bank of Canada start an aggressive interest rate hiking cycle. The BoC’s key lending rate went up by 1.25% since March, and another increase by 0.75% is expected just in two weeks. According to officials, Canada has already reached its full capacity at the end of 2021.

A stronger point of concern is a weak reading for the services sector, which rose by only 0.1% in April. Economists believe that services will lead the recovery after most Covid-19 restrictions were lifted, pushing up spending on travel and hospitality. Statistics Canada didn’t provide numbers for this sector’s growth in May.

A new weakness is Canada’s real estate market as the growing cost of borrowing cools the national demand. Housing was down by 0.8%, following a 0.4% drop reported in March.