Canadian economy expanding at 2.6% annual pace

Canada's economy grew by half a per cent in May, almost twice what economists were expecting, partly because of a strong rebound in the oil and gas sector.

The country's gross domestic product expanded by 2.6 per cent in the 12 months up to May, led by growth in mining, quarrying, and oil and gas extraction,Statistics Canada reported Tuesday.

The Alberta oilsands were a big part of that expansion, as crude bitumen extraction grew by 5.3 per cent in May following maintenance shutdowns at some facilities a month earlier. Economic activity in Canada'soilsands hasnow expanded by 14 per cent in the past year.

Overall, the oil and gas sector has grown for four months in a rowandexpanded by6.4 per cent in the past 12 months.

Real estate, meanwhile, was a soft spotas sales activity forreal estate agents and brokers declined by 2.7 per cent. Thesector has shrunk in four of the first five months this year, following new mortgage rules put in placein January.

After slow sales during an unseasonably chilly April, Canadian retailers rebounded with two per cent higher sales in May.the strongest monthsince October.

Only one out of 19 sectors that the data agency tracks reported a contraction during the month, "and that was utilities, because the weather returned to normal after a horrid April," Bank of Montreal economist Doug Porter said.

"Canadians came out of hibernation in May, and the economy benefited big time."

Porter said BMO is expecting a"much milder" GDP report forJune and the second half of 2018, with tariffs kicking in and the Syncrude outage temporarily biting into growth.

"Still, this strong result adds a trace of drama to the upcoming September 5 [Bank of Canada]rate decision, with the Q2 GDP report due the prior week, and memories of last year's September surprise still fresh," he said.

TD senior economist BrianDePrattosaid in a commentary that it isunlikely that today's data alters the outlook at the Bank of Canada when it comes to its next rate decision.

"They, like us, had already penciled in a robust Q2," he said. "Clearly then, while it may not be right around the corner, so long as the Canadian economy continues to evolve in line with their expectations, more monetary tightening will be forthcoming."