Looking ahead to the release of May GDP data next week, CIBC Capital Markets economist Royce Mendes has released a report that looks at the role residential investment is currently playing in Canada’s growth.

Since “residential investment now accounts for a larger share of the economy than business investment,” he said in the report, that’s leading to questions about whether the end of a housing boom will pose serious concerns.

Typically, both measures are correlated, but businesses have been cautious on investment during the pandemic.

Residential investment takes into account housing construction, renovation and ownership transfer costs, Mendes explained. So, “It’s not a measure of home prices and doesn’t say anything about the affordability or financial stability issues that have come with the surge in home prices during the pandemic.”

Even so, the third underlying factor he cited — ownership transfer costs — have been the “single greatest driver of the surge in residential investment.” And as housing demand cools off, Mendes forecasts that the housing-driven component of GDP will “come back down to earth.”

But that effect may take time, he added. If the reopening of the economy leads to increased housing construction activity, the result could be that “the abnormal negative correlation between housing and business investment continue[s] for a little while longer.”

About the upcoming GDP data, Mendes calls the May statistics “old news” because it’s already been revealed that a modest contraction is on tap. The possible silver lining, he said, is “the early look for June GDP will show a solid rebound coinciding with the relaxation of restrictions across the country.”

A Friday report from National Bank of Canada also mentions the upcoming release of May GDP numbers. Analyst Jocelyn Paquet said in the report, “All told, GDP may have retraced 0.4% [month over month]. This would leave economic output 1.6% short of its pre-crisis (February 2020) level.”

Inflation data will also come out next week, plus a U.S. GDP report and a Federal Reserve rate announcement on July 28.