Canada’s economy expanded faster than economists expected in May, putting the country on track for its strongest quarterly growth in more than three years.
Canadian GDP Beats Expectations
Official figures released on Friday showed that Canada’s gross domestic product increased by 0.3% in May. Economists surveyed by Reuters had forecast growth of 0.2%.
Statistics Canada also revised April’s economic growth higher. The agency now estimates that GDP rose by 0.6% during the month, compared with its previous estimate of 0.5%.
That marked Canada’s strongest monthly economic expansion since July 2025.
Second-Quarter Growth Could Reach 3.4%
Preliminary data from Statistics Canada suggests that the economy grew by another 0.2% in June.
Based on these estimates, Canada’s economy may have expanded at an annualized rate of 3.4% during the second quarter.
This would be considerably stronger than the Bank of Canada’s July 15 projection of 2.5%. It would also represent the fastest annualized quarterly growth since the first quarter of 2023, when the economy expanded by 4.3%.
Bank of Canada Keeps Interest Rates Unchanged
The Bank of Canada left its benchmark overnight interest rate unchanged at 2.25% during its July 15 meeting.
The central bank said it expects economic activity to strengthen during the second half of the year. Lower inflationary pressure and the ability of Canadian companies to adjust to U.S. tariffs could support further growth.
Royce Mendes, managing director and head of macro strategy at Desjardins, said the economy appears to be finding ways to operate despite continued uncertainty surrounding trade with the United States.
Canadian Dollar Strengthens After GDP Report
The Canadian dollar gained slightly following the release of the economic data.
The currency strengthened to approximately C$1.4035 against the U.S. dollar. This was equivalent to around 71.25 U.S. cents.
The positive GDP figures supported expectations that the Bank of Canada will keep interest rates unchanged for the remainder of the year.
Money markets are currently pricing in no further rate changes before the end of the year.
Temporary Factors May Have Boosted Growth
Despite the encouraging figures, analysts warned that some of the economic growth recorded in May and June may have resulted from temporary factors.
Activity linked to the FIFA World Cup may have provided a short-term boost. Hiring related to the national census also supported the economy.
In addition, some oil producers postponed scheduled maintenance to benefit from higher energy prices. This helped increase production during the period.
Andrew Grantham, senior economist at CIBC Capital Markets, said unused capacity in the Canadian economy is likely to decline gradually. He also expects the Bank of Canada to hold interest rates steady throughout the rest of the year.
Energy and Mining Sectors Drive Expansion
Statistics Canada reported that goods-producing industries grew by 0.6% in May.
Meanwhile, service-producing industries recorded a smaller increase of 0.2%.
The mining, quarrying, and oil and gas extraction sector expanded by 1.0%. Within that category, oil and gas extraction increased by 0.7%, mainly because of stronger oil sands production.
The figures suggest that Canada’s economy entered the second half of the year with more momentum than policymakers and economists had previously expected.
