Canada's economy turned in its strongest quarterly performance in more than three years this spring, with stronger exports, renewed housing activity and rising business investment helping to ease concerns about a recession.
Statistics Canada reported Friday that real gross domestic product grew at an annualized rate of 3.3 per cent in the second quarter, slightly below economists' expectations but well above the Bank of Canada's forecast of 2.5 per cent growth. GDP also rose 0.3 per cent in June.
The second-quarter pace marked the fastest growth since early 2023.
Exports drive gains
Exports climbed 3.6 per cent in the second quarter, led by a rebound in passenger car and light truck shipments.
Statistics Canada said auto production had declined in the previous two quarters before recovering this spring.
Business investment also strengthened. Capital investment increased 2.3 per cent in the quarter, ending five straight quarters of decline.
Spending on machinery and equipment reached its highest level in two years. Investment in computers and peripheral equipment surged 16.7 per cent, a gain Statistics Canada linked to processing units used in data centres.
Housing market adds support
The housing sector also contributed to economic growth.
Residential investment increased as activity in the resale housing market picked up during the spring, particularly in Ontario, Quebec and British Columbia.
Meanwhile, rising natural gas prices linked to the war in Iran boosted corporate incomes in the energy sector. The higher costs, however, cut into profits for manufacturers facing more expensive inputs.
Statistics Canada said economic growth in June was broad-based across industries.
Some tourism and hospitality businesses also benefited from Canada hosting 10 FIFA World Cup matches during the month.
The manufacturing sector, which has faced pressure from trade uncertainty, expanded for a third consecutive month in June.
Trade concerns cloud outlook
While the second-quarter numbers painted a healthy picture, economists cautioned that the data does not reflect the latest escalation in the Canada-U.S. trade dispute.
New 50 per cent U.S. tariffs on a range of Canadian goods took effect last weekend. Canada's planned retaliatory measures are scheduled to begin Sept. 8.
Statistics Canada's preliminary estimate suggests GDP was flat in July, partly as economic benefits tied to the FIFA World Cup faded.
Ariane Curtis, senior North America economist at Capital Economics, said the stronger second-quarter performance is unlikely to continue.
"We can’t get too excited about the outlook given the latest preliminary estimate suggests that GDP was unchanged in July, as the FIFA World Cup boost went into reverse," she said.
Focus shifts to Bank of Canada
Friday's report was the final major economic release before the Bank of Canada's next interest rate decision on Sept. 2.
The central bank has left its benchmark interest rate unchanged at 2.25 per cent through six consecutive decisions.
Statistics Canada also revised its earlier estimate for the first quarter, now showing the economy grew at an annualized rate of 0.3 per cent instead of contracting.
"Strong second-quarter GDP growth, alongside an upward revision to Q1, has put recession concerns firmly to rest for now," said Anupriya Gangopadhyay, economist at the Canadian Chamber of Commerce, in a statement.
Gangopadhyay said the latest data could support the case for a rate increase, but she expects the Bank of Canada to remain on hold because of growing trade and geopolitical uncertainty.
BMO chief economist Doug Porter said he expects the central bank to keep rates unchanged through the rest of this year and into 2027.
"The (Bank of Canada) will likely wait and see how the economy handles the latest tariff spat, and how the tussle develops, before judging where rates need to go next," he said.
- with files from The Canadian Press
