By David Ljunggren
OTTAWA, July 31 (Reuters) - Canada's economy grew by a greater-than-expected 0.3% in May and looks set to turn in its best annualized quarterly performance for more than three years, official data indicated on Friday.
Economists polled by Reuters had expected the economy to expand by 0.2% in May. Statistics Canada revised April's growth up to 0.6% from 0.5%, the highest month-on-month gain since July 2025.
In a flash estimate, Statscan said June GDP looked to have increased by 0.2%.
This indicates annualized second-quarter growth of 3.4%, significantly higher than the Bank of Canada's July 15 forecast of 2.5%, and the highest annualized quarterly increase since the 4.3% seen in the first three months of 2023.
The central bank left its benchmark overnight rate unchanged at 2.25% on July 15 and said growth would strengthen in the second half of the year as inflation pressures eased and firms continued to adapt to U.S. tariffs.
"The economy appears to have found ways to navigate the current cloud of uncertainty relating to trade with the United States," said Royce Mendes, managing director and head of macro strategy at Desjardins.
The Canadian dollar firmed slightly after the data to C$1.4035 to the U.S. dollar, or 71.25 U.S. cents.
Analysts did note though that the May and June figures were likely boosted by one-off factors such as the FIFA soccer World Cup, hiring for a national census and the fact that oil facilities had put off scheduled maintenance to take advantage of higher prices.
Money markets are pricing in a hold on rates for the rest of the year.
"We continue to see slack in the economy fading only slowly and for the Bank of Canada to keep interest rates on hold throughout the remainder of the year," said Andrew Grantham, a senior economist at CIBC Capital Markets.
Statistics Canada said goods-producing industries expanded 0.6% while services-producing industries posted a 0.2% gain.
The mining, quarrying, and oil and gas extraction sector expanded 1.0% in May. The oil and gas extraction subsector rose 0.7% in May, due to higher oil sands extraction.
(Reporting by David Ljunggren, editing by Dale Smith and Susan Fenton)
