The growth of Canada’s real gross domestic product (GDP) accelerated to 3.3% in the second quarter, confirming a significant economic recovery after a year‑long decline caused by U.S. tariffs and a slowdown in immigration. The economy expanded from April to June thanks to higher exports, household consumer spending and business investment, Statistics Canada reported on Friday. Economists surveyed by Bloomberg had expected annual growth of 3.4%, matching Statcan’s preliminary estimate.
This is the fastest pace since the start of 2023, indicating that firms are beginning to adapt to U.S. tariffs—a process previously noted by the Bank of Canada. Revised data from the federal agency show that the economy did not contract in the first quarter, as earlier reported, but instead grew by 0.3% on an annualized basis. Consequently, Canada avoided a technical recession and was in a better position than previously thought.
Trade tensions and monetary policy
Exports rose by 15.1% on an annualized basis for the quarter—the fastest pace in more than three years after a 1.3% increase in the prior quarter. However, this momentum faces new obstacles amid renewed trade tensions with the United States. New tariffs of 50% on Canadian goods worth 20 billion dollars took effect on Saturday after negotiations between the two countries reached an impasse last week. Canada plans to respond with retaliatory tariffs on September 8, while President Donald Trump has threatened to raise tariffs on Canadian automobiles and parts to 50% starting January 1.
The latest summary of the Bank of Canada’s discussions also showed that some officials were concerned about the sustainability of the economic recovery in the medium term. The central bank is set to announce its next interest‑rate decision on Wednesday and is expected to keep the key rate at 2.25% for the seventh consecutive time. While traders in the overnight‑swap market are betting on a rate hike by the end of January, renewed trade uncertainty again complicates the monetary‑policy outlook.
In June, real GDP grew by 0.3% compared with the previous month, surpassing economists’ expectations of 0.2%. Statcan’s preliminary estimate suggests that the economy was unchanged in July. Meanwhile, real GDP per capita rose by 3.8% on an annualized basis from April to June, as Canada’s population fell for the third consecutive quarter. This is the fastest growth rate for the indicator since the end of 2021.
Business investment in non‑residential structures, machinery and equipment expanded at the fastest pace in two years—12.3% versus the prior quarter. Investments in computers and peripheral devices increased amid a rise in imports of processors typically used in data centres. Household consumption grew by 3.3%, driven mainly by higher spending on mutual funds, investment services, passenger vehicles and rentals. Corporate revenues rose by 9.6% without annual adjustment—the largest increase since the start of 2021. The boost stemmed from higher energy prices amid the war in Iran. Investment in residential construction rose by 10.4%.
Source: Bloomberg
