OTTAWA, July 31 (Reuters) - Canada's Gross Domestic Product met expectations and shrank 0.1% in May on a monthly basis, but it is likely to regain the lost output in June led by a rebound in some sectors, data showed on Thursday.
An advanced estimate showed the GDP is likely to expand by 0.1% in June, and on an annualized basis it could a post a growth of 0.1% in the second quarter, Statistics Canada said.
A likely growth in the second quarter, which is contrary to most expectations of an expected contraction, could change when the final numbers are released next month.
In May, the biggest hit to growth came from the retail trade sector which contracted by 1.2%, StatsCan said, adding that activity across seven subsectors out of 12 contracted in the month.
Retail trade is a part of the larger services-producing industries which contributes up to 75% to the total GDP. The growth in the services-producing group was flat in May as a drop in retail trade was offset by real estate and transportation.
Amongst the goods-producing industries, which account for 25% of the GDP, mining, quarrying, and oil and gas extraction sector was the main laggard with activity shrinking by 1% in the month.
Howe ever, manufacturing grew by 0.7% in May on a monthly basis, countering 1.8% decline in April, as higher inventory accumulation largely contributed to the growth, the statistics agency said.
Canada's first quarter GDP had grown at 2.2% on an annualized basis as exporters advanced their sales to the U.S. to beat a barrage of incoming tariffs. But as tariffs took effect from March, exports and industrial output took a hit.
The Bank of Canada, after announcing that it would keep rates on hold at 2.75% on Wednesday, said that it expected the economy to contract by 1.5% in the second quarter due to a 25% drop in exports.
But a likely growth in Q2 could take away any incentive for a rate cut in September even though the data on inflation and job growth before the BoC's next meeting would be crucial.
The U.S. and Canada are currently locked in negotiations to hash out a trade deal by Friday in a bid to reduce tariffs, but negotiators have admitted that it may not happen by the deadline.
Reporting by Promit Mukherjee; Editing by Dale Smith
