Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud. 

Bottom line

Today’s release of the GDP for May confirms that growth in the second quarter of 2022 was strong, at about 4.6% q-o-q ar. However, the estimate for June suggests the growth momentum is slowing.

We expect growth in Canada to slow in the second half of 2022, as the impact of fast-rising interest rates starts to impact the broad economy. As such, the “Great consumer squeeze”, an erosion of purchasing power and rising debt-service cost, will slow household spending and meaningfully. Despite slowing momentum, in the second half of the year, we believe the BoC will continue to increase interest rates, hiking by 50bp in September and October.

For Alberta, the details available in the report suggest that economic activity temporarily declined slightly in May due to a reduction in oil and gas extraction activity. High energy prices as expected to be a tailwind to the Alberta economy this year and will mean that the slowdown in economic activity in the second half of the year is likely to be less pronounced than in the rest of the

The monthly GDP was almost unchanged m-o-m in May (+5.6% y-o-y). The details show that 14 out of 20 industrial sectors posted gains on the month. Despite the overall economy being 2.2 percentage points above its pre-pandemic level, 7 out of 20 industrial sectors still have economic activity below their pre-pandemic levels, namely utilities, manufacturing, transportation and warehousing, management of companies, administration and support services, arts, entertainment and recreation, and other services.

Statistics Canada’s preliminary estimate for June puts the decline in economic activity at +0.1% m-o-m. As a result, economic activity in the second quarter likely increased by about 4.6% q-o-q ar.

The goods-producing side of the economy contracted by 1.0% m-o-m, mainly due to a decrease in manufacturing (-1.7% m-o-m) and construction (-1.6% m-o-m), utilities (-0.2% m-o-m) and natural resources extraction (-0.1% m-o-m). Those declines were partly offset by increases in agriculture (+1.6% m-o-m).

The services-producing side of the economy rose 0.4% on the month. The increase in activity was led by transportation and warehousing (+1.9% m-o-m), public administration (+0.5% m-o-m), other services (+0.8% m-o-m), accommodation and food services (+1.9% m-o-m), wholesales, and professional, scientific and technical services. As the housing market corrects, there was a decline in real estate, rental and leasing activity (-0.1% m-o-m), the third consecutive month of decline.

For Alberta, there is no specific data in the report. However, we can make an assessment based on activity in some key industries specific to Alberta. The level of activity in the oil and gas sector likely declined on the month, as an increase in conventional oil extraction and support activity did not offset the decline in non-conventional oil extraction. There were also declines in pipeline activity and petroleum products wholesalers. On the flip side, an increase in agriculture likely offset some of the decline. Overall, this means that the province’s economy probably contracted somewhat in May.

Independent Opinion

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