Canadian economy tracking 3.4% second quarter annualized growth

By Nojoud Al Mallees

(Bloomberg) — The Canadian economy is on track for a stronger-than-expected rebound in the second quarter, as oil and gas led growth in May for a second consecutive month.

A preliminary estimate suggests real gross domestic product expanded at an annualized rate of 3.4% between April and June, according to Statistics Canada’s industry-based output data.

The Bank of Canada’s July monetary policy report projected the economy grew at an annualized rate of 2.5% in the second quarter.

The rebound suggests the economy is stabilizing after a year of stagnation brought on by U.S. tariffs and weaker population growth. It’s also likely to end talk of a Canadian recession after back-to-back contractions in the last quarter of 2025 and the first quarter of this year.

The economy grew 0.3% in May, beating expectations for 0.2% growth. Statistics Canada also gave an advance estimate that the economy expanded 0.2% in June.

The Canadian dollar dropped to a session low against the U.S. currency after the release, falling as much as 0.3% to trade at 1.4050 per U.S. dollar before paring losses. The loonie is still up on the week. Bonds sold off across the curve, with the two-year note touching 2.9%.

Goods-producing industries grew by 0.6% amid broad-based gains. Meanwhile, growth in real estate and rental and leasing drove a 0.2% expansion in services-producing industries.

Mining, quarrying and oil and gas extraction posted the strongest growth in May, expanding by 1%. A separate report from Statistics Canada said it was the highest crude oil production volume for the month of May in data going back to 2016, coinciding with elevated global demand as the Middle East conflict creates supply constraints.

“The economy is not just surviving, but thriving,” Andrew Dicapua, an economist with the Canadian Chamber of Commerce, said by email. “And it’s not just an energy story this time, with interest-rate sensitive sectors reviving.”

Overall, 13 out of 20 industries grew in May. Andrew Grantham, an economist with Canadian Imperial Bank of Commerce, said some of the strength could prove temporary.

“Growth was flattered by a reversal of some one-off factors (i.e. oil maintenance, weather disruptions) that negatively impacted the first quarter, as well as potentially some positive contributions related to the FIFA World Cup,” he said.

Bank of Canada Governor Tiff Macklem said earlier this month that businesses are adapting to the new trade reality and that the central bank expects the economy to continue recovering.

However, some Bank of Canada officials are concerned about the sustainability of a rebound, according to the central bank’s latest summary of deliberations.

U.S. President Donald Trump reignited trade uncertainty earlier this month when he threatened to impose new tariffs on some Canadian goods, set to take effect on Aug. 19.

David-Alexandre Brassard, chief economist at CPA Canada, said the number is unlikely to change the Bank of Canada’s course.

“Now we’re facing headwinds, tariffs threats,” Brassard said on BNN Bloomberg Television. “Uncertainty is, sadly, back on the menu. So investment intentions, which were looking good at the last survey, are probably not going to materialize to the degree we wish they would.”

–With assistance from Mario Baker Ramirez.

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