The Canadian economy performed slightly better than expected in May, amidst rising expectations for the Bank of Canada to make further cuts in interest rates this year.

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Gross domestic product (GDP), which measures the value of goods and services for a specific timeframe, rose by 0.2 per cent in May after a 0.3 per cent increase in April, according to Statistics Canada.

The agency also estimated that GDP for June grew by 0.1 per cent, an advance estimate that may be revised.

Taking the advanced estimate into account, Statistics Canada expects the country’s GDP to grow by 0.5 per cent in the second quarter after growing by 0.4 per cent in the first quarter. The exact numbers will be available on Aug. 30.

“When measured in per-capita terms, the second-quarter advance in GDP still looked quite weak,” Royce Mendes, managing director at Fédération des caisses Desjardins du Québec, said in a note on Wednesday. “As a result, we don’t think this data will derail a third consecutive rate cut in September.”

Tony Stillo, chief Canadian economist at Oxford Economics Group Ltd., said the advanced estimate implies a 0.5 per cent growth rate in GDP in the second quarter, but there’s a downside risk since Statistics Canada’s preliminary estimates have overstated growth in quarterly GDP in five of the past six quarters.

Avery Shenfeld, an economist at CIBC Capital Markets, said Canada’s economy did marginally better than we expected.

“The data will likely see some small upward adjustments to forecasts for the second quarter’s GDP, but not enough to stand in the way of a further rate cut in September,” he said in a note. “This isn’t a podium finish, and neither is the 1.4 per cent growth rate that we’ve seen in monthly GDP over the past year.”

Statistics Canada’s GDP updates play an important role in the interest rate decisions made by the Bank of Canada. The central bank made two consecutive cuts in the past three months after a long pause. The next interest rate announcement is set for September.

Growth in the goods-producing industries rose by 0.4 per cent in May and was the main contributor to the overall growth in the economy, Statistics Canada said. Growth in the services-producing sector edged up 0.1 per cent.

On the whole, 15 of the 20 sectors that Statistics Canada observes expanded in May.

Economic activity in the arts, entertainment and recreation sector grew 0.3 per cent in May, largely due to higher-than-usual attendance levels for spectator sports.

“Three Canadian National Hockey League teams continued to play in the playoffs throughout May, contributing to the increased activity,” the agency said.

The crude oil and other pipeline transportation industry grew by 1.5 per cent, reflecting the expansion of the Trans Mountain Pipeline, Canada’s newest pipeline, which officially opened in May and connects Alberta and British Columbia.

The retail trade sector was the “largest detractor to growth” in May as it contracted 0.9 per cent, Statistics Canada said. Food and beverage stores dropped 2.3 per cent, health and personal care stores were down 1.4 per cent and general merchandise stores were down 1.4 per cent.

The wholesale trade sector also declined by 0.8 per cent in May after growing 1.4 per cent in April. It dropped mainly due to declines in activity in the motor vehicle parts and accessories sector, as well as imports of passenger cars and light trucks, and lower production of motor vehicles and parts manufacturing in May.

“The Canadian economy is feeling the pinch from higher interest rates,” Andrew DiCapua, an economist from the Canadian Chamber of Commerce, said in a note. “Despite this, the resilience of key industries … has lifted the second-quarter GDP estimate above the Bank of Canada’s forecast. However, this growth might be influenced more by seasonal factors.”

• Email: nkarim@postmedia.com

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