Canada’s May GDP remained unchanged from April, as increases in service spending (0.4%) offset decreases in goods-producing industries (1%), according to data released by Statistics Canada on Friday. On a year-over-year basis, GDP grew by 5.6%, exceeding expectations.
This makes Canada an interesting anomaly as its economy still chugs on. Friday’s data comes just a day after reports that the U.S. economy recorded its second consecutive quarter of negative GDP growth, prompting talk of an impending recession there. Europe is also at elevated risk of a recession.
As summer approached, Canadians got outside and traveled more, which helped boost the economy. Transportation across all modes, including urban transit (8.9%) and air transportation (14.1%), grew substantially.
After two years of the pandemic, the airline industry and airports around the country were not adequately prepared or staffed to welcome the influx of passengers, leading to delays and canceled flights. Spending on transportation would likely have been even higher if worker shortage had not been an issue.
Similarly, the accommodation and food services sector continued its steady upward trend, growing 1.9% in May. We expect both the transportation and accommodation and food services sectors to continue growing through the end of August.
The construction sector, on the other hand, was down 1.6% amid high inflation and rising interest rates, as well as strikes from labour unions that delayed projects.
While June data has yet to be released, it seems Canada’s Q2 GDP might in fact reflect modest growth as construction output overall remains strong, alongside strong output in manufacturing as well as accommodation and food services.
Canada can narrowly avoid the conversation around recession for now as consumer spending remains unfazed and unemployment is still at a record low, which will likely be the case throughout summer.
But this is not the time to get complacent. With the global economy at such an uncertain point, organizations need to plan ahead, given that inflation is still running high and consumer spending may wane, which would drag down the economy.