Strong second-quarter rebound

Canada's economy expanded at an annualised rate of 3.3 per cent in the second quarter, marking the strongest growth since 2023, according to Statistics Canada. The reading came in above the Bank of Canada's forecast of 2.5 per cent and followed a revised 0.3 per cent increase in the first quarter, as reported by both Al Jazeera and The Globe and Mail.

The upward revision to first-quarter growth means Canada avoided a technical recession, typically defined as two consecutive quarters of contraction.

The recovery was broad-based, with exports contributing the most to growth. Exports rose at their fastest pace in more than three years, led by vehicle shipments, according to The Globe and Mail. Household consumption also strengthened, with spending rising 0.8 per cent in the quarter—the highest level in three quarters—driven by higher wages and government benefits, Al Jazeera reported.

Business investment grew 2.3 per cent, the first expansion in a year and a half, supported by spending on machinery and equipment as well as residential and non-residential structures. Government investment in assets, however, declined for a second consecutive quarter, falling 2.9 per cent after a 2.6 per cent contraction in the previous quarter.

"It seems like households and businesses were beginning to find ways of navigating the trade-related uncertainty before the latest round of tariffs," Royce Mendes, managing director and head of macro strategy at Desjardins, wrote in a note cited by Al Jazeera.

Tariffs threaten momentum

Despite the strong quarterly performance, the outlook has darkened as US tariffs on Canadian goods took effect this month. President Donald Trump imposed a new 50 per cent tariff on $20 billion of Canadian exports, and Ottawa retaliated with countermeasures on US imports, according to Al Jazeera. The Globe and Mail reported that US tariffs of 50 per cent on goods previously shielded by the US-Mexico-Canada Agreement came into effect on Aug. 22, after trade talks collapsed, with Canadian retaliation set to take effect Sept. 8.

The escalating trade conflict has led some economists to caution against interpreting the second-quarter figure as a sign of durable strength. Torsten Jaccard, a professor at the Vancouver School of Economics at UBC, told The Globe and Mail that he would "be very careful to label this a victory for Canada's economy," noting the quarterly report might reflect "short-run noise" in a "highly volatile policy environment."

Desjardins economists forecast that Canada's unemployment rate could reach 7 per cent by year-end if the new tariffs remain in place, The Globe and Mail reported.

July stalls and economic signals

An advanced estimate for July showed zero growth from the previous month, suggesting the summer momentum may have been short-lived, according to both outlets. The Globe and Mail also noted that domestic demand rebounded to 1 per cent growth in the second quarter from a slight contraction in the first.

Other indicators in the report include a 0.8 per cent increase in jobs during the quarter, the strongest in three quarters, and a third consecutive quarterly decline in Canada's population, according to The Globe and Mail, which also reported that real GDP per capita ticked up.

Rate decisions and other factors

Economists quoted by The Globe and Mail expect the Bank of Canada to hold its benchmark interest rate at 2.25 per cent at its September meeting. The central bank's July forecast had projected second-quarter growth of 2.5 per cent, below the actual 3.3 per cent figure.

The Globe and Mail also cited economists who noted that oil prices could remain elevated if the conflict involving Iran continues, potentially providing support to Canada as a net oil exporter.