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The Canadian economy continued to keep its head just above water in May, growing 0.2%, led by expansions in manufacturing and the public sector.

Statistics Canada’s gross domestic product report on Wednesday said retail and wholesale trade as well as the oil and gas sector weighed on growth.

However, it highlighted the Trans Mountain pipeline expansion’s contribution to economic growth that month.

“The crude oil and other pipeline transportation industry rose 1.5%, reflecting in part commencement of the expanded Trans Mountain pipeline as the first tankers carrying Western Canadian oil departed from the Port of Vancouver in late May,” the report says.

Economists noted while the latest data came in slightly stronger than expected, it reaffirms the fact that economic growth is tepid, warranting a continued reduction in interest rates from the Bank of Canada.

The federal agency estimates that growth was tempered slightly in June to 0.1%, with growth in construction, real estate and rental and leasing, and finance and insurance partially offset by decreases in manufacturing and wholesale trade.

For the second quarter, Statistics Canada expects real gross domestic product grew at an annualized rate of 2.2%.

“Canada’s economy did marginally better than we expected in the closing months of the second quarter, while not registering a medal-winning performance when judged in terms of per capita output gains,” wrote CIBC chief economist Avery Shenfeld.

“The data will likely see some small upward adjustments to forecasts for Q2 GDP, but not enough to stand in the way of a further BoC rate cut in September, which is more tied to the progress seen in inflation readings.”

The latest economic growth figures come one week after the Bank of Canada lowered its key interest rate for a second time in a row.

Governor Tiff Macklem said the central bank’s decision was partly driven by weakening economic conditions.

“That need for growth to pick up was something that was part of our decision to cut the policy interest rate,” Macklem said on July 24.

While the economy has not dipped into a recession, growth has been meagre, particularly when taking population growth into account.

The labour market has also felt the weight of high borrowing costs, with graduates and newcomers particularly affected by dwindling job opportunities.

The unemployment rate has steadily climbed over the last year, reaching 6.4% in June.

The Bank of Canada’s interest rate cuts are expected to take some of the pressure off of the economy, though at 4.5%, its benchmark rate continues to restrict economic growth.

Many forecasters expect the Bank of Canada to follow up with another interest rate reduction in September.

“We think the economic backdrop should give the Bank of Canada room to deliver another interest rate cut in their next meeting in September,” wrote RBC economist Abbey Xu in a client note Wednesday.

The Bank of Canada was the first central bank in the G7 to begin lowering interest rates this year.

Meanwhile, the U.S. Federal Reserve said Wednesday that greater progress has been made in reducing inflation to its two-per-cent target, a sign that the central bank is moving closer toward cutting its key interest rate for the first time in four years.

— With files from The Associated Press