Canada's Q2 Growth Surges Despite Narrow Tariff Threats

Canada's economy bounced back strongly in Q2 with hiring picking up and unemployment rates lowering. Domestic demand remained resilient, while net trade recovered from a soft Q1. The impact of U.S. Section 338 tariff threats is expected to be limited, targeting only around 5% of Canadian exports.

The tariffs will have a significant impact on specific industries such as plastics, clothing, and electrical equipment, but are not expected to affect overall growth. According to forecasts, about 0.4% of Canada's GDP and jobs would be directly impacted by the new measures.

Despite tariff headwinds, Canada's economy is expected to continue growing, with GDP acceleration predicted for the remainder of 2026. The Bank of Canada is likely to keep interest rates on hold through 2026 before potentially raising them in 2027 as economic slack diminishes.