In May, Canada’s GDP report showed that the economy expanded 0.6% on a month over month basis. This marked a seventh consecutive month of increase in economic activity. On a year over year basis, Canada’s GDP expanded 2.6% during the first quarter of 2017. This was also the fourth consecutive quarterly expansion in the GDP.

May’s GDP report beat estimates of 0.2% by a strong margin. Most of the gains in the economic activity came from the goods producing sector which rose 1.6%. The service sector, on the other hand, lagged behind, rising 0.2%. Even the oil and gas sector expanded 7.6% with manufacturing rising 1.1% in May.

On the flipside, construction posted a drag, falling 0.6%. However, this was attributed to the strike during the month among construction workers. The housing sector was overall weak as the real estate and rental sector was seen declining 0.2%. This was partly attributed to the higher interest rates.

Canada Annual GDP Growth Rate: 2.3%, Q1 2017. Source: Tradingeconomics.com

For June, the GDP estimates point to a cooling in the economic activity. Canada GDP is forecast to rise just 0.1%. This would be a significantly slow pace of expansion in the economic activity. However, it would also mark an eight consecutive monthly expansion in the economy.

Markets expect to see another rate hike from the BoC

The Bank of Canada was the second among the G7 economies to hike interest rates. The central bank had raised the overnight rates by 25 basis points in July. The rate hike was the first in nearly 7-years. This came as the BoC had lowered the overnight rates in the height of the oil crisis which saw an overproduction leading to a slump in oil prices.

The decline in oil prices affected the Canadian economy with the BoC President Poloz having to cut interest rates to 0.5% and called it an “insurance” against further declines in oil prices.

The BoC gave an upbeat assessment of the Canadian economy as it said that the economy emerged from sluggish growth in the past years. The BoC, in its statement, said that “Growth is broadening across industries and regions and therefore becoming more sustainable.”