Canada's second quarter GDP recovers sharply as domestic demand revives, exports grow

Canada's economy rebounded sharply in the second quarter after six months of virtually no growth, aided by strong jump in exports and solid domestic demand, data showed on Friday.

The economy grew ‌at an annualized rate of 3.3% in the second quarter, following an upwardly revised 0.3% in the first quarter, Statistics Canada said. With the first quarter revision, which was previously a slight contraction, Canada was not in a technical recession, which is usually two consecutive quarters of contraction.

Healthy domestic demand, led by consumer spending and business ‌investments, signals the economy is slowly brushing off the impacts of more than 18 months of U.S. tariffs that upended North American supply chains and ‌increased costs. A strong domestic consumption and expenditure pattern also puts Canada on a firm footing to withstand a new 50% U.S. tariffs that President Donald Trump imposed this week. Canada retaliated with its own counter-measures.

On a quarterly basis, the GDP grew at 0.8% for the quarter ending June, from an upwardly revised 0.1% in the previous quarter. The second quarter annualized growth was higher ⁠than the Bank ​of Canada's forecast of 2.5% growth ⁠it projected in July.

Higher exports were one of the main contributing factors for the second quarter growth with outbound shipments growing 3.6%, its fastest pace in over three years, StatsCan said. Final ⁠domestic demand, the sum total of all consumption and capital spending and a crucial metric to assess domestic health, rebounded to 1% in the second quarter, from a minor ​contraction in Q1.

This number has been largely muted for the last several quarters as consumers and businesses stayed cautious as Canada navigated a trade ⁠war. Investors and economists also closely watch the GDP numbers to judge whether the economy is being held up by important levers such as consumer spending and private investment or being propped up by ⁠government ​support.

The household final consumption expenditure, the main indicator of consumer spending, rose 0.8%, its highest level in three quarters, highlighting strong household spending trend. Business investment, or business gross fixed capital formation, sprung to a solid 2.3% growth in the second quarter from a contraction of 1.3%. This is the first time ⁠in the last year and a half that businesses investment has expanded.

The growth was led by both residential structures and non-residential structures, machinery and equipment ⁠categories, StatsCan said. However, the general gross fixed ⁠capital formation, essentially government expenditure for creating assets, continued to decline with the second quarter contraction at 2.9%, after shrinking 2.6% in the previous quarter.

On a month-month basis, the GDP for June grew at 0.3% against a forecast of 0.2% ‌and an advanced indicator ‌showed that the economy was largely flat in July, the statistics agency said.