Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Today’s release of the monthly GDP shows that economic activity is proving more resilient than expected. As such, economic activity is estimated to have increased by +2.2% q-o-q ar in 2024Q2, higher than expected by the Bank of Canada in its latest Monetary Policy Report and higher than the latest consensus of economists, at 1.5% q-o-q ar.. While growth in Q2 will likely to be better than expected, it is unlikely to be strong enough to prevent another decline in GDP per capita.
While today’s GDP number suggests that growth in Q2 will be above the BoC’s latest forecast of 1.5% q-o-q ar., it is unlikely to impact its thinking of the economy. At its latest meeting, the central bank clearly mentioned that its focus is shifting from fighting inflation to supporting the economy to avoid further increases in the amount of slack in the economy and protecting against downside risks. As such, the details in the monthly GDP continue to point to weakness in consumer spending and business investment. We expect the BoC to cut again at its September meeting and to bring its policy rate to 4.00% by year-end.
For Alberta, the details available in the report suggest that economic activity likely underperformed the rest of the country in May due to lower activity in oil and gas extraction, especially oil sands activity. However, this weakness was partly offset by a jump in pipeline activity due to the opening of the expanded TMX pipeline. High energy prices remain a tailwind to the Alberta economy this year, but not as much as in the past decade (see Where’s the boom? How the impact of oil on Alberta may have permanently weakened). Moreover, continued strong population growth in the province continues to push economic activity higher.
The monthly GDP increased 0.2% in May (+1.1% y-o-y), slightly better than expectations. The details show that 15 of 20 industrial sectors posted gains on the month. Despite the overall economy being 5.2 percentage points above its pre-pandemic level, 6 out of 20 industrial sectors still have economic activity below their pre-pandemic levels, namely utilities, transportation and warehousing, management of companies, administration and support services, and accommodation and food services.
Statistics Canada’s preliminary estimate shows that GDP rose by 0.1% m-o-m in June. This suggests that growth in the second quarter of 2024 is likely to be around +2.2% q-o-q ar., stronger than in Q1. Moreover, growth in the second quarter is now expected to be higher than what the BoC had in its MPR last week and higher than the consensus, both at 1.5% q-o-q ar.
The goods-producing side of the economy increased 0.4% m-o-m in May. Higher activity in manufacturing (+1.0% m-o-m), agriculture (+0.9% m-o-m), utilities (+0.7% m-o-m) and construction (+0.1% m-o-m) were partly offset by a decline in natural resources extraction (-0.6% m-o-m), especially non-conventional oil extraction (-3.5% m-o-m).
The services-producing side of the economy rose by 0.1% in May. Higher activity in accommodation and food services (+0.9% m-o-m), education (+0.5% m-o-m), public administration (+0.4$ m-o-m), finance and insurance (+0.2% m-o-m), and real estate (+0.1% m-o-m) were the main sources of growth. These gains were partly offset by a decline in retail trade (-0.9% m-o-m) and wholesale trade (-0.8% m-o-m). Transport and warehousing saw an increase of 0.1% m-o-m in May, thanks to an increase in pipeline activity due to the opening of the expanded TransMountain pipeline.
Statistics Canada also notes that activity in the arts, entertainment and recreation increased in May (+0.3 m-o-m) thanks to three Canadian teams’ participation in the NHL playoffs. This likely also provided some support to the food services industry.
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 weaker activity in oil and gas extraction suggests that Alberta likely underperformed the rest of the country in May, despite strong pipeline activity and a sharp increase in agriculture.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.