Economic growth came in slightly lower than expected in May at a monthly growth rate of 0.3%, Statistics Canada reported this morning.

April GDP growth was also revised up from a flat reading to 0.1% month-over-month contraction. StatCan’s early estimate for June also indicated a contraction of 0.2% month-over-month.

That would imply an annualized growth rate of just 1% in the second quarter, down from the 3.4% rate set in Q1 and below the Bank of Canada’s 1.5% forecast.

“This is a somewhat disappointing suite of figures,” noted BMO chief economist Douglas Porter. “The underperformance is no shock, given that the economy was dealing with the civil servant strike, wildfires, and swings in the auto sector.”

The data show that growth in May was led by a 1.4% rebound in public sector activity as striking civil servants returned to the job. Gains were also seen in wholesale trade (+2.9%) and manufacturing (+1.6%), which were boosted by increased auto production.

The recent increase in home sales resulted in the real estate and rental and leasing sector rising 0.5% on a monthly basis and 2% year-over-year.

StatCan also pointed to higher resale activity in Canada’s largest real estate markets for a 7.6% increase in activity at the offices of real estate agents and brokers and activities related to real estate. This marks the fourth consecutive monthly increase in this sector.

Slowing economic growth could keep the Bank of Canada on the sidelines

The slower-than-expected growth and forecasted contraction in June suggests economic activity may finally be waning, which could potentially be enough to keep the Bank of Canada on the sidelines here on out.

“Today's reading points to some slowing momentum heading into the summer months,” wrote TD Economics economist Marc Ercolao. “All said, slowing growth appears to be in the cards for the Canadian economy, and we believe this will be enough for the BoC to remain on hold at its next meeting.”

CIBC’s Andrew Grantham agreed, pointing to preliminary Q2 data coming in below the Bank’s latest forecasts.

“With today's data suggesting that growth was a little weaker than the Bank of Canada's [Monetary Policy Report] projection in Q2, there is a clear risk that policymakers won’t hike interest rates one more time as we had previously anticipated,” he wrote.

June GDP data will be released on Sept. 1.