OTTAWA--Canada's economy has roared back to life, tracking the strongest growth in roughly three years with an expansion in oil and gas activity and recoveries in areas including construction and manufacturing.
Gross domestic product rose 0.3% from the month before in May, building on an upwardly revised 0.6% advance a month prior, Statistics Canada said Friday. The agency's advance data indicates output increased 0.2% in June.
The numbers point to annualized growth of 3.4% in the second quarter, which would mark the strongest pace since the first quarter of 2023. That would greatly outpace the roughly 1.5% expansion most recently projected by the Bank of Canada, and also is well above estimated growth in the U.S. of 1.5% for the same period.
The rebound offers further evidence the economy is working its way through the tariffs and trade uncertainty brought by the Trump administration. It also suggests slack in the economy is slowly being absorbed, though analysts caution the growth comes on the heels of back-to-back quarterly contractions that gave rise to worries about a possible recession. And Canada continues to face headwinds following renewed fighting in the Middle East and President Trump's recent threat of fresh levies on Canadian goods.
The national statistics agency said the early look at June indicates increases in wholesale, finance and insurance, and retail, partially offset by declines in utilities and agriculture, forestry and fishing. Official data for the month will be released late August, and will incorporate a broader pool of figures that includes volatile inventories.
The growth in May was slightly stronger than the 0.1% expansion originally forecast by Statistics Canada. Industry accounts showed growth in 13 of 20 industrial sectors that are tracked, with goods producers expanding 0.6% from a month earlier and services-producing industries rising 0.2%. Compared with a year earlier, overall GDP increased 1.7% in May.
"After all the collective angst about a possible technical recession just a few months ago, it is now clear that the underlying economy is still grinding ahead," said Douglas Porter, chief economist at Bank of Montreal Capital Economics. "For the Bank of Canada, this will provide them with a bit more evidence that the economy is adapting to the trade uncertainty, and will trim their estimate of slack."
Still, with energy prices still high and concerns about new tariffs, Porter and other economists expect the central bank will remain patient and leave interest rates unchanged in 2026.
The recovery in the latest quarter comes after no growth in GDP, a broad measure of goods and services produced across the economy, between the first quarter of 2025 and the first three months of this year. The central bank, which for a sixth time in a row left interest rates steady earlier this month, has forecast activity will strengthen into next year as growth broadens from a reliance on consumer and government spending.
Activity in May was for a second straight month driven by oil and gas extraction, with increased activity in Alberta's oil sands industry and in support activities for the energy sector. The boost from oil and gas was tempered somewhat by the mining industry, as declines in coal and non-metallic minerals countered higher metal ore mining.
Pipeline transportation also saw a lift from increased crude oil volumes and a rise in natural gas with increased export cargoes.
Construction and manufacturing added weight to the expansion, helped by apartment building and a bounce back in chemical manufacturing and increases in pharmaceuticals and medicines. Both sectors of the economy had been hit hard by weakened demand and uncertainty amid the trade war with the U.S.
Canada's public sector continued to expand, with federal government public administration activity boosted by the nationwide 2026 census.
A summary released this week of the deliberations around the Bank of Canada's last policy meeting reflected a range of views among governing council members about the sustainability of the rebound in the economy beyond the near term. Officials said that although the economy appeared to be adjusting to the shocks it has faced, there remained risk in businesses remaining wary, a possible stalling in the housing market recovery given a large inventory of condos in some cities, and the possibility that consumer spending could weaken if hiring doesn't pick up.
"Policymakers on Wellington Street in Ottawa will be pleased with these numbers, but Canada's economic recovery is still in its early innings and trade tensions remain elevated," said Ali Jaffery, chief economist at KPMG Canada. "The Bank of Canada certainly will not be in any rush to raise rates."
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