National Bank of Canada's (NBC) Kyle Dahms notes that the Canadian economy began Q2 on a stronger-than-expected footing, with real Gross Domestic Product (GDP) boosted by energy, manufacturing and construction. He highlights that energy strength and inventory rebuilding should support volumes, and that real GDP is tracking a solid annualized gain, though he stresses the outlook remains fragile given tariffs, housing and inflation headwinds.

Energy-led growth with fragile outlook

"The Canadian economy started the second quarter on a stronger footing than expected, with real GDP rising 0.5% in April, above consensus expectations of 0.4%. While broad-based, the rebound was led by the energy sector, which rose 3.1% as mining/quarrying/oil & gas extraction surged 2.9%."

"Much of April’s gain reflected a normalization in oil sands and pipeline activity following earlier disruptions, but energy should remain supportive through Q2 given elevated prices in May and much of June, as well as higher volumes given demand for stable sources of supply amid global uncertainty."

"Looking ahead, price pressures should ease, but volumes could remain supported as inventories drawn down in Q2 are rebuilt."

"Still, including this preliminary estimate, real GDP growth in the second quarter is tracking a 2.3% annualized increase, a strong pace given the headwinds facing the economy. Adjusted for the decline in population, growth looks even stronger, with GDP per capita tracking a 2.8% annualized increase in Q2."

"However, the outlook remains fragile. Tariff uncertainty, weak resale activity in major housing markets, and the lingering inflation impact from previously elevated energy prices continue to represent meaningful headwinds for consumers and business investment."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)