Fresh data from Statistics Canada on Friday suggests the economy was growing at a healthy clip in the second quarter and rumblings of a recession earlier in the year might’ve been overblown.
Real gross domestic product rose 3.3% in the second quarter, a tick lower than economists’ expectations. That was still the fastest quarterly pace of growth since early 2023.
Exports jumped 3.6% in the second quarter, led by a rebound in shipments of passenger cars and light trucks. Auto production had declined in the previous two quarters, Statistics Canada said.
Residential investment was also giving the economy a lift as Statistics Canada said the resale housing market was heating up over the spring, particularly in Ontario, Quebec and British Columbia.
Statistics Canada said business capital investment, meanwhile, was up 2.3% in the second quarter, snapping a streak of five consecutive quarters of decline.
Spending on machinery and equipment rose to its highest level in two years, the agency said. Investments in computers and peripherals jumped 16.7% in the second quarter, which Statistics Canada said was related to the kinds of processing units used in data centres.
Higher gas prices tied to the war in Iran boosted corporate incomes in the energy sector last quarter but also acted as a drag on earnings for manufacturing firms, who saw their input costs rise.
Statistics Canada said real GDP was up 0.3% in June amid broad-based growth across industries. Some tourism and hospitality sectors got a lift from Canada hosting 10 games in the FIFA World Cup in June, the agency said.
The tariff-sensitive manufacturing industry expanded for a third consecutive month in June, Statistics Canada noted.
But the agency also anticipates that manufacturing lost a step in July, leading to flat growth in its early GDP estimates for the month.
The second-quarter data does not reflect any of the escalating trade war between Canada and the United States. New 50% U.S. tariffs on a range of Canadian goods went into effect last weekend, while Canada’s planned retaliatory measures are set to start Sept. 8.
Ariane Curtis, senior North America economist at Capital Economics, said in a note to clients Friday that new tariff headwinds from the United States suggest strong momentum from Q2 won’t carry over into the third quarter.
“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.
Back in May, Statistics Canada reported a marginal annualized decline in first-quarter GDP — a second consecutive quarterly drop that fuelled some debate over whether Canada was in a recession.
But that quarterly contraction was erased as part of the agency’s regular revisions on Friday. Statistics Canada now says that GDP in the first quarter was actually slightly positive at 0.3% annualized.
“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.
The second-quarter GDP report marks the final major data release before the Bank of Canada’s next interest rate announcement on Sept. 2. The central bank has held its benchmark interest rate steady at 2.25% in six consecutive decisions.
Gangopadhyay said, at first glance, the strong GDP figures for the second quarter would bolster the case for a rate hike. But she expects the Bank of Canada will remain on the sidelines next week as renewed trade and geopolitical uncertainty threaten to hamper growth in the months ahead.
BMO chief economist Doug Porter said in a note Friday that he expects the Bank of Canada to remain on hold 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.