It has been a busy week as far as economic data from Canada is concerned. Over the past weeks, economic data from Canada included the monthly inflation figures for May.
Official data from Statistics Canada saw inflation rising more than expected in May. Headline inflation jumped 0.4% on the month, beating estimates of a 0.1% increase. On a year over year basis, inflation rose 2.4%, up from 2.0% in April.
This week, the monthly gross domestic product will be coming out. The GDP data covers the month of April. Estimates point to a slower pace of increase of just 0.2% on the month. This follows the 0.5% gain seen in March.
In the first quarter, Canada’s GDP growth rate was rose by 1.3% compared to the same period a year ago. It was a slower pace of growth for the second consecutive quarter. This week’s data for the month of April will show how the economy fared during the first period of the second quarter.
The Bank of Canada had already signaled a soft growth patch in the first quarter but sounded optimistic that growth would pick up during the second quarter.
Canada April GDP – Soft Growth Expected?
Going by the estimates, economists forecast a soft growth period during April. This comes as various economic reports for the month indicate a mixed picture.
Retail sales grew at a pace of 0.1%, rising to $5.1 billion during the month. This marked a third consecutive monthly gain. But excluding sales at gasoline stations and motor vehicle parts and dealers, retail sales were down 0.1%.
Sales increased in 7 out of 11 sub-sectors while retail sales in volume terms were down 0.2%. The biggest contributor to the headline retail sales report was sales as gasoline stores.
Sales increased 1.2% at gasoline stores but in terms of volume, gasoline sales were down 0.2%. There were also strong gains with sales at store retailers which jumped 2.8%, marking a second month of increase.
The soft patch of growth in April follows a strong 1.8% increase in core retail sales and 1.3% increase in headline retail sales during the previous month.
Manufacturing Sales Fall in April
While retail sales saw a modest increase, it was a different story with manufacturing sales. Data showed that manufacturing sales fell 0.6% to a seasonally adjusted $57.8 billion in the month of April.
The biggest declines which contributed to the overall fall in manufacturing sales came from transportation equipment and primary metal industries. When excluding manufacturing sales for the above two sectors, there was an increase of 0.8%.
Transportation equipment sales fell 6.7% and continued the decline for the fifth consecutive month. Motor vehicle sales fell by 8.9%. The declines are mostly attributed to the temporary shutting down of manufacturing plants during the period.
Trade Balance Figures Rise on Exports
When looking at the trade balance numbers for April, however, data saw an increase in Canada’s international merchandise trade.
Exports jumped 1.3% in April with gold exports rising dramatically during the period. A decline in imports to the tune of 1.4% due to lower aircraft orders helped to prop up the trade balance figures.
The merchandise trade deficit fell from $2.3 billion to $966 million in April. This was the lowest trade deficit by Canada since October 2018. In terms of volume, exports grew by 2.0% while imports fell by 1.9%.
The trade balance figures alongside the modest pick up in retail sales put the GDP data for April to surprise to the upside. However, the surprise factor could be limited.
In such a case, the markets will be automatically looking to see the Bank of Canada turn hawkish. The next BoC meeting is due on July 10th. While the central bank is not expected to hike rates on the back of the inflation and hopefully higher GDP growth, it could tweak its forward guidance.