Canada economy posts fastest growth in three years

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Canada economy grows 3.3%

Highlights

Canada posted its strongest growth since early 2023.
Exports and business investment drove the rebound.
Revised data showed no first-quarter contraction.

Statistics Canada reported Friday that real GDP rose 3.3% between April and June, just below the 3.4% pace economists had expected, according to Bloomberg. First-quarter growth was also revised to an annualized 0.3% increase from an earlier estimate showing contraction, improving the picture of Canada’s economy before a fresh escalation in trade tensions with the United States.

Exports and investment lead the rebound

Exports rose at an annualized 15.1% pace in the second quarter, the strongest increase in more than three years and a sharp acceleration from the 1.3% gain recorded previously.

Business investment also strengthened. Spending on nonresidential structures, machinery, and equipment climbed 12.3% on a quarterly basis, the fastest pace in two years. Investment in computers and related equipment increased as imports of processing units used in data centers rose.

Household consumption advanced 3.3%, supported by spending on vehicles, rent, mutual funds, and investment services. Residential investment rose 10.4%, while corporate income increased 9.6% from the previous quarter, its biggest gain since early 2021.

Trade tensions cloud the outlook

The second-quarter strength arrived just before trade conditions worsened again. New U.S. tariffs of 50% on about $20 billion of Canadian goods took effect Saturday after negotiations between the two countries broke down.

Canada plans retaliatory measures from Sept. 8, while President Donald Trump has threatened to raise tariffs on Canadian-made vehicles and parts to 50% from Jan. 1.

Those measures could weaken one of the main sources of second-quarter growth. Export momentum was especially strong between April and June, meaning a renewed hit to cross-border trade could make the expansion harder to sustain.

Monthly data also point to slower momentum. Real GDP rose 0.3% in June, above expectations for 0.2%, but a preliminary estimate showed little or no growth in July.

Bank of Canada faces a stronger but riskier economy

The data give the Bank of Canada a stronger starting point ahead of its next rate decision. The central bank is widely expected to keep its policy rate at 2.25% for a seventh consecutive meeting.

Per capita GDP also improved sharply, rising at an annualized 3.8% rate as Canada’s population declined for a third straight quarter. That was the fastest increase since late 2021.

Still, the policy outlook is complicated by tariffs. Stronger growth reduces pressure for near-term easing, but renewed trade restrictions could hit exports, investment, and confidence in the coming quarters. The rebound is therefore broad enough to strengthen Canada’s economic position, but not yet secure enough to remove the risks created by its relationship with the United States.

We also reported Canada braces for prolonged U.S. trade war after talks collapse.

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