OTTAWA, July 31 (Reuters) - Canada's gross domestic product increased by 0.2% in May, exceeding market expectations thanks in part to gains in the manufacturing sector, and the economy likely expanded at a 2.2% annualized rate in the second quarter, data showed on Wednesday.
Analysts polled by Reuters had forecast GDP growth of 0.1% in the month, after the 0.3% rise in April.
In a preliminary estimate, GDP was likely up by 0.1% in June, helped by increases in the construction, real estate, rental and leasing, as well as finance and insurance sectors, Statistics Canada said.
That estimate translates to a 2.2% annualized growth rate for the second quarter, faster than the Bank of Canada's 1.5% forecast for the three months ended in June.
The growth rate was 1.7% in the first quarter.
The central bank lowered its benchmark rate for a second straight month last week, and indicated its focus was shifting to boosting the economy. The bank expects growth to pick up in the second half of 2024, led by stronger exports and a recovery in household spending as borrowing costs ease.
The Canadian dollar firmed after the GDP numbers were released with the loonie trading up 0.22% to 1.3817 against the U.S. dollar, or 72.37 U.S. cents.
Money markets are betting an almost 85% chance of another 25 basis point rate cut at the bank's next monetary policy decision announcement on Sept. 4, up from 60% a week ago, but lower from around 92% seen on Tuesday.
Growth in May was led by the manufacturing sector, which posted its largest gain since January 2023, and the educational services, health care and social assistance and public administration.
The opening of the expanded Trans Mountain pipeline in May also contributed to the growth, helping the pipeline transportation sector post a 0.6% gain in the month, Statscan said.
Gains were partially offset by contractions in the retail trade, wholesale trade as well as mining, quarrying and oil and gas extraction sectors.
The mining, quarrying and oil and gas extraction sector was weighed down mainly by the oil and gas extraction, which declined partially due to maintenance at some facilities in northern Alberta.
Overall, 15 of 20 sectors expanded in May, with Canada's goods-producing sector, which accounts for a quarter of the total GDP, gaining 0.4% and the services sector posting a 0.1% increase.
Wednesday's monthly GDP report is based on Canada's industrial output while quarterly figures, which will be released next month, are based on an alternate calculation and can differ.
Reporting by Ismail Shakil and Dale Smith in Ottawa; Additional reporting by Promit Mukherjee, Editing by Louise Heavens
