By Alexandre Deslongchamps

July 31 (Bloomberg) -- Canada’s economy contracted for a 10th month in May because of falling manufacturing output, and declines in the mining and energy industries.

Gross domestic product dropped 0.5 percent during the month, compared with the median estimate for a 0.3 percent decrease in a Bloomberg News survey of 22 economists. The economy shrank 0.2 percent in April, Statistics Canada also said, revising its original estimate of a 0.1 percent decline.

The report adds to evidence the world’s eighth-largest economy extended its contraction in the second quarter as the global slump saps orders for Canadian exports. The Bank of Canada said July 23 that growth will resume this quarter, as commodity prices and consumer confidence improve.

“It digs the hole a little bit deeper for the economy to crawl out of in the third quarter, but it’s still possible,” said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto.

The economy fell 3.5 percent in May from the year-ago month, the biggest drop since October 1982, Statistics Canada said.

The Canadian dollar erased gains after the report, and traded for C$1.0842 at 9:09 a.m., from C$1.0834 yesterday.

Output shrank at a 5.4 percent annual rate in the first quarter, the biggest drop since 1991, and will shrink at a 3 percent pace in the second quarter, according to a separate Bloomberg survey.

Manufacturing Drop

Manufacturing output fell 1.6 percent in May, reflecting a 21 percent tumble for carmakers and an 8.2 percent drop for companies that produce vehicle parts, the agency said. May’s drop in manufacturing brought to 16 percent the contraction of the industry in the previous 12 months.

Oil and gas extraction fell 2.6 percent as some facilities were shut for maintenance, leading to a 2.3 percent decline in the energy industry. Mining excluding oil and gas extraction dropped 0.9 percent, the statistics agency said.

Sixteen of the 21 major manufacturing groups posted monthly declines in output, Statistics Canada said. Construction fell 0.7 percent, the Ottawa-based statistics agency said.

Services-producing industries were unchanged in the month, as retail trade rose 0.6 percent and offset a 0.4 percent drop in wholesale trade and a 2.9 percent decline in arts and entertainment.

To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.