Canada’s economy grew in May, despite wildfires that caused big slowdown in oil and gas sector

Canada’s economy expanded by 0.3 per cent in May, as a large decline in oil and gas output due to wildfires was offset by growth in the service sector.

Statistics Canada reported Friday that more than half of all industries posted growth, but the headline figure was dragged down by declines in a few key industries. The energy sector, normally a source of strength, shrank by 2.1 per cent, because it was “severely impacted” by wildfires.

“This was the sector’s first decline in five months and its largest since August 2020,” the agency said.

Oil and gas extraction fell by 3.6 per cent during the month as a result of the forest fires in Alberta. That was the biggest decline since April 2020. “The fires primarily impacted installations in the western parts of the province, from Edmonton to the Rocky Mountains’ Foothills in the Clearwater, Montney and Duvernay formations,” Statistics Canada said.

Other industries

Residential building construction was another drag on growth, as activity fell by 1.8 per cent. That was the first decrease in five months and it was driven by declines in home alterations and improvement, and construction of new single-detached homes.

On the positive side of the ledger, the wholesale and manufacturing sectors grew, as previous supply-chain bottlenecks continued to ease. 

The public sector also expanded, mostly aided by the end of a large and lengthy public sector worker strike.

The 0.3 per cent growth figure for May is slightly below the advanced forecast of 0.4 per cent that the data agency had previously anticipated.

Advanced data for June suggests the May growth in GDP was short-lived, as the next month is on track for a 0.2 per cent contraction.

“Economic activity popped higher in May, but a reversal in June suggests that momentum is beginning to falter,” Desjardins economist Royce Mendes said of the numbers.

Doug Porter, an economist with Bank of Montreal, says that the data released Friday suggest the economy is on track to grow by about 1.2 per cent in the second quarter as a whole. That’s less than the Bank of Canada is forecasting, and about half the 2.4 per cent pace seen in the U.S. economy over the same period.

“Growth is going to struggle to stay firmly in the positive column in the second half of the year, and we are likely to see more back-and-forth months like May and June resulting in very slow growth overall,” he said.