Oil drives Canada's fastest economic growth spurt in a year

OTTAWA (Bloomberg) -- Canada’s economy grew at the fastest pace in a year with gains led by crude oil, further evidence of a solid expansion even as trade tensions with the U.S. remain a threat.

Gross domestic product expanded by 0.5% in May, faster than the 0.3% forecast in a Bloomberg survey of economists.

Non-conventional oil output jumped 5.3% for the sixth gain in seven months as more production came back online after shutdowns, Statistics Canada said Tuesday from Ottawa. Nineteen of 20 industries showed gains on the month, including retail sales rising 2% on the heels of weakness in April linked to cold weather.

The world’s 10th largest economy is on track for annualized growth of at least 2% for the rest of this year after weakness in the first quarter. Consumer spending is supported by a strong job market and some companies are boosting investment as they reach their capacity limits.

GDP grew by 2.6% in May from a year earlier, the statistics agency said.

Bank of Canada policy makers raised interest rates this month for the fourth time in a year and said more increases may be needed in a fairly tight economy. Investors were putting 25% odds on another rate increase at the central bank’s next meeting before Tuesday’s GDP report was published.

The wild card remains a growing trade fight with the U.S. that threatens the North American Free Trade Agreement and keeps pressure on other sectors including lumber and uranium. The uncertainty is holding back some new investment and curbing exports.

Industries with strong ties to exporting nevertheless posted increases in May. Transportation and warehousing climbed 0.4% and manufacturing was up 0.1%.