Goods-producing sectors expanded 1% with oil drilling surging, services managed 0.1%. May data points to firmer Q2 growth, keeping the BoC on hold. The Fed tilted hawkish, widening the policy gap.
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Canada's economy likely grew 0.4% in April after stagnating for two straight quarters, according to economists at a major Canadian bank. Statistics Canada releases the official reading Tuesday.
The rebound is narrow. Goods-producing sectors expanded roughly 1%, driven by a jump in non-conventional oil extraction and oil drilling. Manufacturing added. Service-sector GDP managed just 0.1%. Wholesale trade fell 0.3%. Retail was flat. Real estate and rentals provided the lift after Canadian home resales ticked higher in April, the first monthly gain since October.
Early May data looks firmer. The labour market strengthened. Home resales rose 5.1% from April, the biggest monthly increase since October 2024. StatCan's advanced indicators point to rising nominal retail and manufacturing sales in May, consistent with the bank's card transaction tracker showing resilient though slightly weaker spending growth.
Oil prices have moved lower in recent weeks. If sustained, those declines restore some household purchasing power eroded by higher fuel costs. They also limit the risk of inflation spreading beyond energy.
The combination of firmer Q2 growth and easing inflation pressures validates the Bank of Canada's stance. Policymakers have said they will not overreact to temporarily higher oil prices or mechanically soft data. With growth picking up and core inflation subdued, economists at the bank continue to expect no rate change in 2026.
South of the border, the Federal Reserve tilted decidedly hawkish in its latest meeting, the first under new Chair Kevin Warsh. Half of the FOMC excluding Warsh expect at least one rate hike in 2026, driven by sticky-to-accelerating core inflation and a robust labour market.
Thursday's U.S. employment report is forecast to reinforce that view. Economists expect a 145,000 payrolls gain and an unemployment rate holding at 4.3%.
The policy divergence works against the Canadian dollar. A solid Canada GDP print supports the BoC's hold. The Fed's hawkish lean and lower oil prices create headwinds for the loonie. Thursday's U.S. jobs report is due at 8:30 a.m. ET.
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