OTTAWA - The Canadian economy contracted in May, the fifth consecutive monthly decrease, increasing the possibility the country slipped into a recession in the first half of the year.
Real gross domestic product fell 0.2 per cent in May due mostly to weakness in manufacturing, mining, quarrying and oil and gas extraction as well as wholesale trade, Statistics Canada said Friday.
Economists had expected no change for the month, according to Thomson Reuters.
"There is no sugar-coating this one — it's a sour result," BMO chief economist Douglas Porter said in a note to clients, adding that it all but locks in a contraction of the economy in the second quarter.
"While we believe the five-month string of declines is likely to end in the next monthly report, that's cold comfort following a run of disappointment.
"More important is whether the economy can begin to recover in the second half of the year — we think it will amid an improving U.S. economy, stronger auto production, some fiscal stimulus and generous financial conditions. But, there is no debating that the steady drumbeat of bad news raises doubts on that relatively sunny outlook."
While much has been said about the impact of low oil prices on spending in the energy sector and the ripple effects on the economy, the manufacturing sector also showed a significant drop in May.
Manufacturing output contracted 1.7 per cent in May, while mining, quarrying, and oil and gas extraction fell 0.7 per cent as the goods-producing industries fell 0.6 per cent.
Meanwhile, the service-providing industries, which had increased for three consecutive months, edged down 0.1 per cent in May. Wholesale trade fell 1.0 per cent in May, but retail trade rose 0.5 per cent for the month.
Concerns of a possible recession, defined as two consecutive quarters of contraction in gross domestic product, have grown since Statistics Canada reported the economy pulled back at an annual pace of 0.6 per cent in the first quarter.
But some economists have said Canada hasn't exhibited some of the classic hallmarks of a recession, citing the country's job growth and stable employment rate.
TD Bank lowered its estimate Friday for the second quarter to predict a decline at an annual rate between 1.0 and 1.5 per cent compared with its earlier expectations of a contraction at an annual pace of 1.0 per cent.
"The weakness in Canada in the first half of the year was very widespread," TD senior economist Randall Bartlett said.
"In May we saw that 13 of the 20 major industries had output contract, so that's not just a one-industry story. That's a broad-based weakness in the Canadian economy which I think stands in stark contrast to what we saw in the U.S."
The U.S. Commerce Department said Thursday its economy grew at an annual rate of 2.3 per cent in the second quarter. The department also revised its estimate for the first quarter to show growth at an annual pace of 0.6 per cent, reversing an earlier estimate of a contraction.
In addition to the damage done to the economy by low oil prices and weak exports, they have also cast doubt on the federal government's promise to balance the books as it heads into an election.
Estimates for economic growth this year have been slashed and now stand below the levels forecast when Ottawa tabled its budget in the spring.
But Prime Minister Stephen Harper said last week that his government was "well ahead" of its own forecast for a balanced budget despite the economic struggles.