Manufacturing sector drove growth as Canada's economy grew 0.2% in May

Canada's economy grew 0.2 per cent in May,Statistics Canada said on Wednesday,a tick higher thanwhat economists were expecting.

The manufacturing sector drove growth in May for the second consecutive month, Statistics Canada said, whilethe mining, quarrying and oil and gas extracting sector contracted by 0.6 per cent. Wholesale trade fell to0.8 per cent in May after a 1.4 per cent increase in April.

Pipeline transportation increased 0.6 per cent in May as the expanded Trans Mountain Pipeline began operations.

The public sector was up 0.4 per cent in May, growing for the fifth consecutive month, due to increases in public administration and educational services.

However, the retail sector was the largest drag on economic growth in May.Most retail sub-sectorswere down, too, including purchases from food and beverage stores, health and personal care stores, and general merchandise stores.

Canada's GDP could outpace central bank'sQ2 forecast

The data agency is estimating thatGDP in June grew a modest 0.1 per cent.It has also forecast that annualized GDP growth in the second quarter will come out to 2.2 per cent, well beyond the 1.5 per cent growth estimated by the Bank of Canada during its July interest rate meeting.

"Even though there is quite a large gap there, the Canadian economy is still growing below potential," Andrew DiCapua, a senior economist at the Canadian Chamber of Commerce, told CBC News in an interview.

"At the end of the day, I think most economists are expecting that the bank is going to be moving around two times this year, bringing the policy rate down to about fourper cent."

DiCapuahad written in an early morning notethat high interest rates were pinching the economy, particularly impacting the retail sector. The growth in May might be influenced by seasonal factors rather than a shift in economic momentum, hesaid.

"The consumer is still under weather with higher interest rates and even though we've had now two rate cuts, that's going to take some time to feed into the system," DiCapua told CBC.