Energy Sector Boosts Canada GDP Growth

The energy sector recovery boosted the Canadian economy in May, giving the nation the fastest level of growth since October 2000, according to a new report by The Canadian Press.

Statistics Canada had predicted a jump in real gross domestic product by 0.2% in May, but the economy grew by 0.6% instead. The high growth rate ups the chances that the Bank of Canada will increase interest rates in September, Oilprice.com reported.

The Bank of Canada increased the principal interest rate to 0.75% earlier this month. The jump represented the first such move since 2010, just a couple of years after the global economic recession.

 “While that very impressive headline comes with a caveat—last May was depressed by the Alberta wildfires—even excluding that factor leaves the underlying growth trend well above 3%,” Doug Porter, economist for Bank of Montreal, wrote in a note to clients this week, referring to the annual GDP growth rate.

“While the blowout headline advance no doubt exaggerates the underlying strength in growth, the fact is that every single major surprise for the economy this year has been to the upside,” Porter added.

The drilling recovery in Canada can be traced by the Baker Hughes rig count, which has had the Canadian count increasing by double digit numbers in recent weeks. The country added 15 oil and gas rigs last week and added another 14 rigs this week. Of the 14 new active rigs this week in Canada, 11 were oil rigs. Oil rigs in Canada now stand at 129, up 60 on the year.

Earlier this month, wildfires threatened the Kinder Morgan Trans Mountain pipeline in British Columbia, prompting the company to take “precautionary measures” to protect the infrastructure project. The fire has already affected mining and forestry operations in the area.

  Economy Healthy

TD Bank senior economist Brian DePratto said the economic performance was healthy across nearly every industry. “This is only going to strengthen the case for them,” he said of the central bank, The Canadian Press reported.

The Canadian dollar, which has been gaining ground since the middle of last month when speculation of a central bank rate hike started, was trading at 80.52 US cents, up from an average price of 79.87 cents on Thursday.

The Bank of Canada’s next opportunity to raise its key rate is in September, but DePratto suggested it would wait until its October rate announcement when it will also update its economic forecasts in its monetary policy report.

Compared with a year ago, the economy soared 4.6%. The result was the best since October 2000 when the economy posted year-over-year growth of 4.7%.

He said the latest report puts Canada on track for roughly 3% GDP growth this year, more than a percentage point above where consensus expectations were just six months ago.

“While the blowout headline advance no doubt exaggerates the underlying strength in growth, the fact is that every single major surprise for the economy this year has been to the upside,” Porter said.

Statistics Canada said goods-producing industries rose 1.6%, driven by a 4.6% increase in the mining, quarrying, and oil and gas extraction sector.

The oil and gas extraction subsector grew 7.6%, with non-conventional oil extraction rising 13% due to a rebound in activity after a fire at the Syncrude Mildred Lake upgrader in mid-March that curtailed production. Conventional oil and gas extraction gained 3.2%.

Service-producing industries increased 0.2%, led by finance and insurance services.

The lengthy run of growth mirrors gains in the job market and reflects a growing number of sectors driving the recovery.