Canada's Economy Grows 3.3% in Second Quarter — Update

By Robb M. Stewart

OTTAWA--Canadian economic growth picked up strongly in the second quarter, thanks to a jump in exports, resilient household spending and a recovery in business investment.

Gross domestic product increased at an annualized rate of 3.3% in the April-to-June period to 2.524 trillion Canadian dollars, the equivalent of US$1.822 trillion, Statistics Canada said Friday. That marks the strongest expansion in more than three years.

Economists were expecting slightly stronger growth of about 3.5% for the quarter, though data for the first quarter has been revised upward to show growth of 0.3%. Statistics Canada previously estimated a slim 0.1% contraction for the first three months of the year, on the heels of a 1% drop in GDP in the last quarter of 2025.

Recent data signals Canada's economy has found its feet after the hit last year from the shift in U.S. trade policy and tariffs, though the durability of the recovery could be tested after the Trump administration introduced fresh levies on imports of select Canadian goods.

Monthly income-based data points also released Friday showed a third straight month of GDP growth in June, however an advance estimate of activity in July indicates the economy was essentially unchanged for the month.

The GDP report is the last big economic indicator to be released before the Bank of Canada meets next week to decide on interest rates. The central bank's latest projection anticipated the economy would grow a more modest 2.5% in the latest quarter, which after the soft start to the year put it on track for a lackluster 0.7% expansion in 2026.

On a per capita basis, Canada's economy grew 3.8% at annual rates after advancing 1.3% in the first quarter as the country's population declined for a third straight quarter.

Canadian exports rose 3.6% in the second quarter, the biggest increase since the first quarter of 2023. The advance was led by a jump in shipment of passenger cars and light trucks following a recovery in automotive production, after seeing declines in the previous two quarters. Exports of energy and metal products, as well as industrial machinery and equipment, also boosted volumes for the period.

Imports were up 0.3%, slowing after a first-quarter increase of 3.1%.

Business investment was up, with a rise in spending on machinery and equipment as well outlays on engineering structures, following two straight quarters of declines.

Still, businesses withdrew from their inventories during the quarter, stripping 1.3 percentage points from gross domestic product, after a large build-up of stocks in the first quarter. Manufacturers recorded the largest withdrawals, followed by wholesalers and farm operators.

Household spending was up for a third quarter running, led by the buying of mutual funds and other investments, passenger cars and rent. Still, consumers spent less on gasoline and food in the period, as prices at the pump spiked and grocery costs remained elevated.

After falling the prior two quarters, residential investment rose in the second quarter, with resale housing activity picking up and construction rising.

Employee compensation increased 1.5% in the quarter, driven by higher wages in finance, real estate and company management and trade. The household savings rate also was up, reaching 3.7% as growth in disposable income outpaced nominal spending.

Corporate incomes were up sharply, rising 9.6% in the second quarter for the largest rise since the first quarter of 2021. The biggest contributor was the energy sector as crude oil prices climbed, while manufacturing industries that are heavily reliant on energy inputs saw a lower operating surplus as costs rose.

Final domestic demand, a gauge of spending by all sectors of the economy, increased at a nonannualized rate of 1% in the three months after no change in the first quarter.

Industry-level data showed GDP grew 0.3% in June from the month before, slightly stronger than the 0.2% expansion economists had expected and matching the pace in May.

June's growth was driven by services-producing industries, with increased activity in wholesale trade, retail and public administration. Manufacturing and construction expanded for the month, offset by weakness in mining, oil and gas extraction, and utilities.

Statistics Canada said advance information points to no change in GDP in July, kicking off the third quarter on a soft note. The early data pointed to increases in real estate and professional, scientific and technical services, balanced by decreases in retail trade and manufacturing.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 28, 2026 08:57 ET (12:57 GMT)