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Debates about whether or not the Canadian economy is in a recession were largely put to rest with the release of May’s GDP numbers from Statistics Canada. The question is no longer “if” but rather “how bad will it be?”


The economy shrank for the fifth consecutive month (and for the sixth time in seven months) in May as the impact of the oil price shock continues to reverberate through the country. May’s decline of 0.2 per cent was the largest month-over-month contraction in real GDP since January. While it is still possible to escape the technical definition of a recession (two consecutive quarters of negative growth), such an outcome is nearly impossible, especially given that oil prices have once again started to drop.

There were few positive stories to May’s GDP report as ten of the fifteen major economic subsectors posted negative growth for the month. While continued supply disruptions from wildfires affecting oil production were a major factor once again (down 0.7 per cent), the most significant weak spot in May was the manufacturing sector where real GDP fell by 1.7 per cent. The utilities sector also posted sharp declines (-1.4 per cent) that month.


Of the few sectors that did grow in May, the runaway leaders were construction and tourism-based industries. GDP in construction rose by 1.0 per cent compared to April, while the lower Canadian dollar helped to attract more foreign visitors to the country. GDP in accommodation and food services industries rose by 0.9 per cent in May – its second consecutive month of solid gains.

The decline in manufacturing GDP in May was one of the largest in recent memory. In fact, given the size and importance of manufacturing to the Canadian economy, that sector played a major role in Canada’s overall weak performance in May. Not including manufacturing, Canadian GDP was essentially flat that month.


On the positive side, revisions to past months’ data converted losses in March and April into modest gains. However, the story for manufacturing will be a sobering one in the coming months; at this same time last year, the sector was enjoying a major surge in growth. That surge, combined with present-day weakness means that on a year-over-year basis, manufacturing GDP was down 2.3 per cent compared to May 2014. A similar scenario is all but guaranteed for the next several months.

Within the manufacturing sector itself, losses were relatively widespread, with seven of Canada’s eleven largest sub-sectors posting negative growth. Even so, a small number of industries were especially hard-hit – machinery, fabricated metals and wood products. Machinery value-added production fell by 4.3 per cent in May and is down 11.7 per cent from its December peak. Losses were especially pronounced in industrial and metalworking machinery output, as well as agricultural and mining machinery. For its part, fabricated metals GDP fell by 3.0 per cent, led by structural metals, machine shops and related output. Wood products GDP was down 2.8 per cent for the month.

Manufacturing GDP by Major Sector      
  Apr-15 May-15 Apr-May May 2014 - May 2015
  ($billions) ($billions) % growth % growth
Total Manufacturing 172.9 170.0 -1.7 -2.3
  Durables 97.7 97.7 0.0 -4.2
  Non-durables 73.0 72.4 -0.7 0.9
         
Major Industries        
  Food 22.7 22.4 -1.1 0.2
  Motor vehicles and parts 17.4 17.5 0.9 -4.7
  Chemicals 14.0 14.0 -0.5 2.8
  Machinery 13.4 12.8 -4.3 -7.2
  Primary metals 13.9 13.8 -0.5 -4.8
  Fabricated metals 12.4 12.0 -3.0 -8.8
  Wood products 9.6 9.4 -2.8 2.9
  Plastics and rubber prods. 9.2 9.3 0.6 5.0
  Paper products 7.3 7.4 0.3 0.6
  Aerospace  7.0 7.0 -0.9 -1.8
  Petroleum and coal prods. 6.5 6.6 0.7 -0.5

Offsetting those losses to some degree was an uptick in motor vehicles production (0.9 per cent) and in oil refinery output (0.8 per cent increase).

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