UPDATE 2-Canada GDP rises 0.2 pct in May, 2nd quarter looks soft

Wed Jul 31, 2013 9:59am EDT

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* Growth is less than the 0.3 percent forecast

* More precise reading is 0.24 percent growth in May

* June expected to be soggy due to flood, strike

* C$ softens on Canada, U.S. GDP data

By Randall Palmer

OTTAWA, July 31 (Reuters) - The Canadian economy grew by 0.2 percent in May from April, according to Statistics Canada data on Wednesday, below forecasts and dampening expectations for the second quarter.

The fifth consecutive monthly increase beat the 0.1 percent rate registered in April, but the median forecast in a Reuters survey was for 0.3 percent growth, ahead of what is expected to be a poor June reading due to floods and a Quebec labor strike.

The headline figure for May was rounded down from a more precise reading of 0.24 percent growth.

Some economists had begun to question whether the Bank of Canada's prediction for second-quarter growth of an annualized 1.0 percent would turn out to be too low. But the weaker-than-expected May data might send them back to the drawing board.

"We had been moving up our Q2 growth forecast as results rolled in for May, but this report will likely reverse those revisions," said CIBC World Markets chief economist Avery Shenfeld.

However, BMO Capital Markets chief economist Doug Porter focused on momentum: "While a shade light in May, Canadian growth still had slightly more underlying momentum than initially expected in the spring, helping it ride through some nasty short-term shocks in June and early July."

Porter added: "Still, the pullback in energy output restrained overall activity, leaving our broader forecast unchanged at this point."

The Bank of Canada predicted this month that third-quarter annualized growth would jump to 3.8 percent, as the economy bounces back from the floods and strike.

"The Bank of Canada's been pretty clear. They'll look through (the June disruptions) as will most of the analysts, so whatever you take out or see in terms of the hit in the second quarter you'd be adding back in the third quarter, so net-net no change on a two-quarter basis," said Royal Bank of Canada chief economist Craig Wright.

The United States on Wednesday reported second-quarter growth of 1.7 percent, stronger than the 1.0 percent median forecast.

The combined effect of the North American data depressed the Canadian dollar to a session low of C$1.0337 to the U.S. dollar , or 96.74 U.S. cents, before it recovered somewhat to C$1.0312, or 96.97 U.S. cents. It had closed the North American session on Tuesday at C$1.0302 or 97.07 U.S. cents.

Goods production fell by 0.3 percent in May, mainly due to a 2.2 percent decline in oil and gas output - all in oil sands, which dropped 7.4 percent in May after a 6.0 percent decline in April. Some of the oil decline was because of maintenance at some petroleum facilities.

However, manufacturing advanced 0.3 percent. Services grew by 0.5 percent.

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