'Trade uncertainty is back with new U.S. tariffs now imposed, Canadian retaliation due early next month, and the prospect of further escalation hard to dismiss'
Canadian gross domestic product rose by 3.3 per cent annualized in the second quarter, the fastest quarterly expansion since 2023. Economists largely expected the growth after a string of data released showed signs the economy was rebounding from a slow start to the year. Statistics Canada also revised the data for the first quarter of 2026, showing the economy actually grew by 0.3 per cent.
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Despite the Canadian economy’s “impressive growth” in the second quarter, the recent escalation of trade tensions with the U.S., and with monthly data suggesting that the economy was already slowing even before new tariffs hit, Friday’s data will be viewed as old news, said CIBC senior economist Andrew Grantham. He said the GDP numbers don’t change CIBC’s forecast for the Bank of Canada to remain on hold.
StatCan’s slight revisions to historic data for the first quarter GDP revises it into positive territory, so quarterly data no longer show two consecutive quarters of contraction around the turn of the year.
“Impressive, but what comes next (is) more important,” Grantham wrote.
He noted that the strong second quarter growth rate eclipsed the 2.5 per cent estimate from the Bank of Canada’s most recent MPR, suggesting a slightly narrower negative output gap.
However, with early tracking for the third quarter appearing close to the Bank’s 1.5 per cent forecast, and with the recent escalation in U.S. tariffs and related uncertainty clouding the future outlook, Grantham still doesn’t expect the Bank of Canada to move off the sidelines anytime soon, he said.
