1-866-711-2262

Search

Real GDP Rebounds in Second Quarter

Canadian Economics

By: Viktor Cicman

    

Real gross domestic product (GDP) increased by 0.3 per cent in June, and for the second quarter, real GDP rose by 3.3 per cent (annualized), following a revised first quarter of 0.1 per cent quarterly growth.

  • A sharp increase in exports was the primary driver of the strong rebound in the second quarter. Exports increased by 3.6 per cent, marking the strongest quarterly gain since the first quarter of 2023. The growth was driven primarily by a 27.0 per cent increase in exports of passenger cars and light trucks, reflecting a recovery in Canadian auto production after declines over the previous two quarters.
  • Household spending was the second largest contributor to output growth in the quarter. Household final consumption expenditure increased 0.8 per cent in the second quarter of 2026, driven by higher spending on financials such as mutual funds and other investment services, passenger vehicles, and rent.
  • Business capital investments saw healthy growth this quarter as well. Business investment was also bolstered by higher spending on machinery and equipment which rose to its highest level since the second quarter of 2024. Meanwhile, investment in engineering structures rose 2.3 per cent, following two consecutive quarterly declines.
  • Inventories fell as business withdrew $17 billion in the second quarter of 2026 after building up stock $10.0 billion in the first quarter. Manufacturers recorded the largest withdrawals of inventory, followed by wholesalers and farm operators. This change in business inventories stripped off 1.3 percentage points of growth from gross domestic product in the quarter.
  • Incomes for both employees and corporations saw increases. Compensation of employees increased by 1.5 per cent in the second quarter, led by higher wages in finance, real estate and company management and trade. All provinces also saw growth. Corporate incomes rose 9.6 per cent propelled by the energy sector which gained from higher prices. However, manufacturing industries, which are heavily reliant on energy inputs, recorded lower operating surplus as costs increased.
  • The household savings rate increased, as income grew more than spending. The household saving rate increased to 3.7 per cent in the second quarter as growth in disposable income (+2.1 per cent) outpaced nominal household spending (+1.7 per cent). Both wages and salaries and government transfers contributed to the higher income gains.
  • In June real gross domestic product grew by 0.3 per cent. This was the third consecutive monthly increase, with 13 of 20 industrial sectors contributing to the growth. Services-producing industries led growth, rising by 0.4 per cent in June, driven by the growth in wholesale trade, retail trade and public administration.
  • Despite the increases in manufacturing and construction, goods-producing sectors edged down 0.1 per cent for June, due to contractions in mining, quarrying, and oil and gas extraction and utilities.
  • FIFA World Cup 2026 gave a boost to some industries. Information and cultural industries expanded 0.4 per cent in June, led by the increase in radio and television broadcasting stations. Arts, entertainment and recreation grew 1.1 per cent. The performing arts, spectator sports and related industries, and heritage institution subsector was the sole contributor to the increase.

Key insights

The economy appears to be on more solid footing after little growth in the first quarter of 2026. The rebound was led by higher exports, household spending and business capital investment. Other indicators also show that the economy is remaining resilient. Total employment increased by 181,000 positions between April and July, driven primarily by gains in private-sector and full-time employment. Inflation, excluding gasoline, remains withing the bank of Canada target, hovering around 2 per cent annually. Average hourly wages slowed over the course of the year, but wage gains have continued to exceed underlying inflation, supporting consumer spending and household incomes.

While economic indicators have shown positive signs in recent months, the outlook remains highly uncertain. The breakdown of recent trade negotiations with the United States, coupled with the announcement of new 50 per cent U.S. tariffs on a broad range of Canadian goods, has heightened uncertainty for businesses and raised concerns about the competitiveness of Canadian exports. In addition, continued tensions between Iran and the United States continue to add volatility in global energy markets, pushing gasoline prices higher and raising the risk that higher energy prices could feed into broader inflation. Domestically, a shrinking population throughout 2026 is expected to constrain labour force growth and weigh on job gains. Against this backdrop, a key question is whether the recent recovery in exports and private investment can be sustained long enough to support economic growth despite ongoing trade tensions.

To learn more about Canada’s economic outlooks for the long-term or the next five years, please consult our Canadian Five-Year Outlook.

Related Insights

See More Insights