Canada's Economy Sees Strong Growth Amid Trade Tensions

Canada's economy rebounded in the second quarter, growing at an annualized rate of 3.3 per cent, according to Statistics Canada. This is roughly matching economists' expectations and marks the country's strongest quarter for growth since the third quarter of 2024.

The growth was broad-based, with exports being the largest contributor, increasing at their fastest pace in over three years. Vehicle shipments led the way, but an economic rebound driven by strong exports seems precarious given the recent barrage of new tariffs and threats from the US President Donald Trump's administration.

Business investment increased in the quarter, driven by higher spending on machinery and equipment, but it is set to be challenged as trade relations deteriorated between Ottawa and Washington. The US tariffs on goods previously shielded by the US-Mexico-Canada trade pact came into effect on August 22, targeting $28-billion or 5 per cent of shipments to the US.

Economists expect the impact to be concentrated in targeted sectors, but retaliatory tariffs announced by Ottawa set to take effect on September 8 are expected to add modest inflation pressure and potentially provoke further harmful US trade policies. Tariffs will hit industries with heavily integrated supply chains the hardest, such as manufacturing, said LJ Valencia, an economist at Desjardins.