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Canada's economy rebounds after a stagnant stretch
May flash estimate and revised April data suggest a major second-quarter acceleration
Key Takeaways:
- Canada’s GDP expanded 0.1% in May after 0.5% growth in April, setting up 2.3% annualized second-quarter growth.
- The rebound was driven by oil and gas, manufacturing, construction and real estate, challenging claims of a prolonged downturn.
- CIBC’s Andrew Grantham said the rebound would not erase the first-quarter output gap, and forecast no Bank of Canada rate change this year.
Canada’s economy is set to rebound sharply in the second quarter amid a spike in oil production, ending a half-year of stagnation.
Gross domestic product expanded 0.1% in May, according to a flash estimate from Statistics Canada released June 30. It rose 0.5% in April, above the 0.4% growth expected by economists in a Bloomberg survey and the fastest pace since July 2025.
Assuming no growth in June, the industry-based output data suggest Canada’s economy will expand at a 2.3% annualized pace in the second quarter, a major acceleration after a half-year of flat industrial output.
The data will dispel claims that Canada is in the midst of a prolonged downturn. In May, the statistics agency reported that expenditure-based GDP contracted for two consecutive quarters starting at the end of last year, satisfying one condition of a recession.
While most economists and the central bank have rejected that label, U.S. trade policy and an abrupt slowdown in immigration of non-permanent residents have led to weaker, choppier growth. The Bank of Canada expects the economy will be in excess supply through most of 2026.
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The two-year Canadian government bond yield rose after the release to 2.73% as of 8:58 a.m. in Ottawa. The loonie was about 0.1% weaker at C$1.42 per U.S. dollar.
“Today’s data show that the Canadian economy sprang back to life,” Andrew Grantham, senior economist at Canadian Imperial Bank of Commerce, said in an email.
While the projected rebound in the second quarter would be above the Bank of Canada’s latest estimate of 1.5%, it still wouldn’t make up for the first-quarter miss in the output gap, Grantham said.
“We continue to forecast no change in the Bank of Canada’s overnight rate this year,” he said.
Goods-producing industries rose 1.2% in April, Statistics Canada reported, driven by oil and gas extraction. The increase in petroleum output was due to a rebound in synthetic crude oil production, which the agency said followed longer-than-anticipated unscheduled maintenance that tempered growth through the first three months of the year.
Oil and gas extraction also ramped up off the country’s Atlantic coast, coinciding with a global spike in petroleum prices because of the war in the Middle East.
The country’s manufacturing sector expanded 0.6% in April. Construction output rose for the first time in five months. Real estate activity also grew, reflecting an increase in housing resale activity, the agency said, particularly in Toronto.
