OTTAWA — Economists analyzing the latest gross domestic product (GDP) figures are suggesting that early signs of an economic recovery in Canada's second quarter indicate the country is not in a recession. According to a report from Statistics Canada, real GDP rose by 0.3 percent in May, surpassing its initial estimate of 0.1 percent growth for the month.
Andrew Grantham, a senior economist at CIBC, noted that the economic growth observed in May was broad-based. With expectations for continued growth of 0.2 percent in June, the advance estimates from Statistics Canada are pointing towards a substantial annualized gain of 3.4 percent for the second quarter. This potential rebound contrasts sharply with a mild contraction experienced in the first quarter of the year.
Grantham emphasized that a rebound was anticipated, but the strength of the recovery in the second quarter exceeded expectations. This growth should effectively dispel any notions that Canada is currently facing a recession. Contributing to this growth, according to Statistics Canada, were sectors such as oil and gas extraction, and a revitalizing housing market, both of which had faced temporary setbacks in the previous quarter. Early maintenance activities had hampered oil and gas output, while harsh winter weather had negatively impacted home sales during the first quarter.
Other temporary factors, including hiring related to the census and the FIFA World Cup events taking place in June, also likely provided an additional boost to the economy in the second quarter. In particular, the offices of real estate agents and brokers saw a significant increase in activity, with a 5.1 percent rise in May, marking the largest monthly increase since October 2024. However, despite the recent gains, Grantham cautioned that the housing market is still not robust.
The construction, manufacturing, and finance and insurance sectors all recorded growth for a second consecutive month in May, and the public sector also saw expansion. Marc Ercolao, an economist at TD Bank, stated that the recent data has not shown substantial evidence of a meaningful economic downturn. He articulated that the stagnation in growth observed during the first quarter was likely due to temporary disruptions and volatility rather than a significant decline in underlying activity.
Doug Porter, the chief economist at BMO, noted that the slight decline in growth during the first three months of the year may have overstated the economy's weakness. He pointed out that the true state of Canada's output probably lies somewhere between the results of the first and second quarters. Porter anticipates a moderation in growth during the second half of the year, citing high fuel costs and the recent tariff threats from U.S. President Donald Trump as potential factors that could dampen economic expansion.
Nevertheless, Porter remarked that the economy continues to "grind ahead" despite concerns of a technical recession expressed earlier. He highlighted that the current positive reading provides convincing evidence that the economy has recovered from the growth lull experienced at the start of the year.
Statistics Canada is set to release its official estimates for the second quarter alongside the June GDP figures at the end of August. The Bank of Canada is scheduled to announce its next interest rate decision on September 2, shortly after the release of these figures. Earlier this month, the central bank kept its benchmark interest rate steady at 2.25 percent and has maintained this position throughout all of 2026.
At the beginning of the year, the Bank of Canada projected GDP growth to average around 1.5 percent for the first and second quarters. Following the miss in the first quarter, the central bank adjusted its expectations upward to a 2.5 percent increase for the second quarter. If Statistics Canada's preliminary estimates hold, this forecast may prove to be conservative.
Grantham noted that the combined results from the first and second quarters align closely with the Bank of Canada's expectations and are unlikely to significantly alter the central bank's current trajectory. He anticipates growth to cool below 2 percent in the third quarter, facing additional headwinds from new U.S. tariffs. Ercolao echoed this sentiment, suggesting that the May GDP report does little to change the narrative for the central bank, which is expected to remain on the sidelines for the remainder of the year.
He concluded that the resilient growth of the economy negates the need for further interest rate relief, while subdued inflation, ongoing labor market slack, and trade uncertainties indicate that a shift towards a more restrictive stance is unwarranted. Financial market odds for maintaining interest rates at the Bank of Canada's upcoming September meeting stood at approximately 97 percent as of Friday at noon, according to data from LSEG Data & Analytics.
