Strong May GDP growth gives hope that the economy is past survival mode

When you look at these GDP numbers, it appears that the economy is not just surviving, but thriving. And it’s not just an energy story this time, with interest-rate sensitive sectors reviving in May. The second quarter is on pace for an exceptionally strong rebound. It’s still an open question how durable the recent growth engines will be from a production standpoint, especially in oil and natural gas extraction. But this clearly reinforces the position of Governing Council that they don’t need to intervene to support the economy. This does come as new U.S. tariff threats could be in place in just over two weeks which would add uncertainty and threaten progress. Businesses have indicated that investment would be further delayed if these come to pass. The growth outlook could become the central risk for the Bank of Canada depending on how trade negotiations play out in the coming months and if inflation continues to surprise to the downside.

Key Takeaways

Canada’s economy expanded by 0.3% in May, beating Statistics Canada’s preliminary estimate of 0.1% and economist expectations. April growth was also revised higher, from 0.5% to 0.6%. Overall, 13 of 20 sectors expanded, with goods-producing industries rising 0.6% and services growing 0.2%. This marks two consecutive months of solid growth and suggests the second-quarter rebound was broader than initially expected.

Mining, quarrying and oil and gas extraction led growth for a second consecutive month, rising 1% as producers receive higher prices. Oil sands extraction increased 1.6% as some maintenance activity was completed earlier than usual or deferred, while support activities for mining and oil and gas jumped 7.3%. Stronger energy production also supported pipeline transportation.

The positive news is that growth extended well beyond the energy sector. Construction expanded by 0.8%, its second consecutive monthly increase, while manufacturing rose 0.3%. Chemical manufacturing led the factory gain, supported by a rebound in pharmaceutical production and exports.

Housing also began to show signs of life ahead of the summer months despite a rapid population slowdown. Real estate, rental and leasing activity rose 0.4% for its fourth consecutive increase. Activity at the offices of real estate agents and brokers jumped 5.1%, the strongest monthly gain since October 2024, reflecting higher home resales in Ontario and British Columbia.

The pickup in both construction and real estate is an encouraging demand signal. It could point to more residential and business investment in the pipeline after a sluggish start to the year. It also suggests households remain willing to make major financial decisions despite tariff uncertainty, higher energy costs and a still-soft labour market. That resilience will be important if the recovery is going to carry into the second half of the year.

Implications

Statistics Canada’s flash estimate suggests GDP increased another 0.2% in June, supported by wholesale and retail trade and finance and insurance. If that estimate holds, the economy is on track to grow by approximately 3.4% annualized in the second quarter. That would be one of Canada’s strongest quarters in several years and would exceed the Bank of Canada’s latest forecast of 2.5% for Q2 2026.

There is reason to treat that estimate with some caution. Monthly GDP by industry has not tracked quarterly expenditure-based GDP as tightly in recent quarters. Compared to last year, GDP is on an upswing. Still, even with some downward adjustment, this looks like a rebound from the contraction at the start of the year. The economy has regained momentum, activity is broadening, and tariff uncertainty has not stopped economic activity moving forward entirely. The durability of that momentum remains the bigger question, but the second quarter has given the Canadian economy a much stronger foundation heading into the second half of 2026.

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