Early signs of an economic rebound in the second quarter should put to rest any talk of Canada being in a recession, according to economists parsing the latest gross domestic product figures.
Statistics Canada reported Friday that real GDP rose 0.3 per cent in May amid growth in both the goods and services sides of the economy. That topped StatCan’s own initial estimate for 0.1 per cent growth in the month.
Andrew Grantham, senior economist at CIBC, said growth was fairly broad-based in May.
With expectations for 0.2 per cent growth in June, StatCan's advance estimates now point to a 3.4 per cent annualized gain in the second quarter.
If those figures hold, it would mark a sharp rebound from a mild contraction in the first quarter of the year.
"We always expected a rebound. The fact that the rebound that we appear to be seeing in Q2 is even stronger than we were initially expecting ... should put the final exclamation mark on the fact that Canada is not currently in a recession," Grantham said.
StatCan pointed to growth in oil and gas extraction as well as a resurgent housing market as a couple of the industries fuelling growth in May.
Grantham noted that these sectors were both bouncing back from temporary drags in the first quarter — early maintenance activity weighed on oil and gas output, while harsh winter weather put a chill on home sales.
Other temporary factors like hiring for the census and FIFA World Cup games in June also likely gave the economy a lift in the second quarter, Grantham said.
StatCan said offices of real estate agents and brokers saw activity increase 5.1 per cent in May — the subsector’s biggest monthly jump since October 2024. Despite the recent gains, Grantham noted the housing market is by no means strong right now.
Construction, manufacturing and the finance and insurance sectors all grew for a second consecutive month and the public sector also expanded in May.
TD Bank economist Marc Ercolao said most recent data hasn't shown much evidence of a meaningful downturn.
"It's increasingly looking like the stalling of growth in the first quarter was more reflective of temporary drags and volatility rather than a meaningful deterioration in underlying activity," he said in a note to clients.
BMO chief economist Doug Porter said in a note that the small dip in the first three months of the year "overstated the economy's weakness," and the truth of Canada's current output probably lies in the average between the two quarters.
Porter expects growth will moderate in the second half of the year from the second quarter's robust pace. High fuel costs and U.S. President Donald Trump's latest tariff threat against Canada should put a chill on growth, he argued.
But Porter, too, said the economy is still "grinding ahead" despite rumblings of a technical recession a few months ago.
"Today's well-rounded reading provides further evidence that the economy has broken free from the growth lull around the turn of the year," he said.
StatCan will release its official estimates for the second quarter when it reports June GDP figures at the end of August.
The Bank of Canada is scheduled to make its next interest rate decision on Sept. 2, a few days after that release. The central bank held its benchmark interest rate steady at 2.25 per cent earlier this month and has so far been on hold for all of 2026.
At the start of this year, the Bank of Canada had expected GDP growth to average around 1.5 per cent across the first and second quarters.
After the first-quarter miss, the central bank raised its outlook for a 2.5 per cent increase in the second quarter — a forecast that could end up short of the mark if StatCan's flash estimates hold.
Grantham said that, taken together, results for the first and second quarter are close to the Bank of Canada's expectations and likely won't throw the central bank too far off its current course.
He said he expects growth will cool back below two per cent in the third quarter amid new U.S. tariff headwinds.
Ercolao also said the May GDP print does little to change the narrative for the central bank, which TD expects to remain on the sidelines for the rest of the year.
"Growth is proving resilient enough to forego additional rate relief, while contained inflation readings, lingering labour market slack and ongoing trade uncertainty argue against a shift toward a more restrictive stance," he said.
Financial market odds for an interest rate hold at the Bank of Canada's September meeting stood at nearly 97 per cent as of Friday at noon, according to LSEG Data & Analytics.
Picture Courtesy: THE CANADIAN PRESS/Darryl Dyck
