RBC sees Q2 GDP growth above 3% annualized as domestic demand strengthens alongside a trade rebound. A midnight deadline on U.S. tariffs looms for a deal to ease duties.
Canada is set to report June and Q2 gross domestic product figures next Friday, and RBC economists expect the data to confirm a sharp rebound in economic activity after a winter lull.
Statistics Canada produces two GDP measures – one based on monthly production, another on quarterly expenditure. The two have diverged in recent quarters. In Q1, the production measure posted a small gain while the expenditure measure fell for a second straight quarter. Monthly data, however, has looked much stronger through Q2.
RBC forecasts a 0.2% increase in June, matching Statistics Canada's own advance estimate. That would add to nearly a full percentage point of growth in April and May combined. Monthly figures are prone to revision, but they point to annualized Q2 growth above 3%, the economists said. Labour market data has firmed after a slow start to the year, and a broad range of indicators confirms the bounce-back, they wrote in a note.
Some of that strength reflects a reversal of temporary weakness from the winter. Net trade likely made a substantial positive contribution as exports outpaced imports, led partly by a recovery in auto production after supply disruptions, according to RBC. But the improvement appears broader than just trade. RBC's tracking of cardholder transactions showed stronger consumer spending even with higher fuel costs during the quarter. A jump in equipment imports suggests business investment grew more strongly. Residential investment also appears to have rebounded alongside improving home resales and housing starts, though housing activity remains soft and the recovery is gradual, the economists said.
The boost from auto production and net trade is unlikely to be repeated in coming quarters. Declining population is still expected to weigh on total GDP growth, and trade uncertainty along with remaining product-specific tariffs remain headwinds for business investment. Still, early indicators for July – including RBC's consumer spending tracking and a firming in hours worked – have remained constructive early in Q3, the economists said.
A separate deadline looms at midnight tonight (August 21st) for the U.S. and Canada to finalize a deal that could prevent additional 50% tariffs on another group of Canadian exports, threatened in July. Early reports suggest current tariffs on products like autos, steel, and aluminum could be lowered under the agreement, and most Canadian trade maintains duty-free access to the U.S. through CUSMA exemptions, the economists noted.
RBC expects growth to moderate from Q2's strong pace but remain positive over the remainder of 2026. That is consistent with the bank's base case for a gradual cyclical recovery, including further improvement in per-capita growth even as elevated trade uncertainty persists, they said.
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