RBC Economics projects Canada's Q2 GDP rebounded strongly, even as a critical trade deadline looms
Canada's economy is expected to show a decisive rebound in the second quarter of 2026, according to a new analysis from RBC Economics, with GDP growth tracking above 3% annualised, a sharp reversal from the soft patch that weighed on activity through the winter months.
The analysis, authored by RBC Economics economists Nathan Janzen and Abbey Xu, projects a 0.2% increase in June monthly gross domestic product (GDP), in line with Statistics Canada's earlier advance estimate.
Combined with an almost full percentage point rise over April and May, monthly production data point to quarterly growth well above the pace recorded in either of the two prior quarters.
Statistics Canada is scheduled to release both the June monthly figure and the full Q2 expenditure estimate next Friday, August 29.
The projected Q2 rebound is broader than a single driver. Net exports are expected to have made a substantial positive contribution, with auto sector output recovering after production disruptions earlier in the year depressed volumes.
Janzen and Xu note that RBC's own cardholder transaction data pointed to stronger consumer spending during the quarter despite higher fuel costs, while a jump in equipment imports indicates business investment likely accelerated.
Residential investment also appears to have recovered alongside improving home resales and housing starts, though Janzen and Xu caution that housing activity remains soft and a gradual recovery is still the base case for mortgage professionals tracking Canadian homebuying demand.
The distinction between Statistics Canada's two GDP measures is relevant context for this release.
The production-based monthly series and the expenditure-based quarterly estimate diverged significantly in recent quarters, including Q1 2026, when production posted a small gain while expenditure recorded a second consecutive small decline.
Monthly data for Q2 have looked substantially better on balance, and the two measures are widely expected to converge in the upcoming report.
Trade deal provides crucial backdrop
With the GDP release days away, Canada's economic outlook is also being shaped in real time by trade negotiations.
A deadline passed at midnight on August 21 to finalise an agreement with the United States to avoid 50% tariffs on a further subset of Canadian exports, including steel and aluminium.
Early reports suggest current tariffs on those goods could be reduced, and Janzen and Xu note that most Canadian trade continues to flow duty-free to the US through Canada-United States-Mexico Agreement (CUSMA) exemptions.
Those exemptions have been the critical stabiliser for export-dependent sectors — and, by extension, for Canadian lenders and brokers monitoring Canada's trade-exposed regional housing markets as a barometer of borrower confidence.
For the mortgage industry, the Q2 growth signal matters in part because it influences the Bank of Canada's rate calculus. The central bank has held its overnight rate at 2.25% since late 2025, with the governing council citing ongoing trade uncertainty as a key reason for caution.
Headwinds persist into the second half
Even with Q2 tracking strongly, Janzen and Xu project that the pace of growth will moderate as the year progresses. The boost from net trade and auto production is unlikely to repeat, and declining population, a trend affecting mortgage demand across markets, is expected to remain a drag on total GDP.
Trade uncertainty and remaining product-specific tariffs continue to act as headwinds for business investment.
Early Q3 signals are nonetheless constructive. RBC's tracking of consumer spending and a firming in hours worked in July both point to continued positive momentum, supporting the firm's base case forecast for a gradual cyclical recovery in Canada's mortgage market through the remainder of 2026, including per-capita growth improvement even as elevated trade risk persists.
The upcoming GDP release will be one of the most consequential economic data points of the summer for Canada's mortgage and lending industry.
A strong result could reinforce consumer confidence at a moment when Canadian home resales are showing early signs of recovery after a weak start to the year — though analysts caution that the broader environment, including the resolution of trade tensions with the US, will determine how durable that recovery proves to be.
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