April's stronger-than-expected real gross domestic product figures indicates a better transition to the second quarter with Q2 growth now tracking above an annualized pace of 2%, TD Economics wrote in a note.
"Zooming out, that leaves the first-quarter stumble looking more like a temporary soft patch than the start of a deeper downturn, broadly in line with the Bank of Canada's view that growth should resume in Q2 even if the economy remains in excess supply," said economist Marc Ercolao.
This reading should help deflate the recent "technical recession" narrative, Ercolao said.
Real GDP grew 0.5% in April, Statistics Canada said on Tuesday, following a 0.1% contraction in March. The consensus on Investing.com was for 0.4%. An advance estimate for May projected growth of 0.1%, StatsCan said.
Canada's economy never entered any "credible" definition of recession, but growth is rebounding in Q2, wrote Scotiabank's Derek Holt, head of capital markets economics.
"This offers a nice set-up for the Bank of Canada's wholesale forecast reset in the July 15th MPR and following next week's BoC surveys that are likely to show higher inflation expectations," Holt said. The central bank will release its latest monetary policy report, or MPR, later this month.
Holt calculated that Q2 GDP is tracking a gain of 2.3% quarter-on-quarter on a seasonally adjusted annual rate and could even round up to 2.4%, the strongest growth since Q3 2025, using monthly production-side GDP accounts.
BMO's Douglas Porter said the rebound is "especially encouraging." Still, in a note Tuesday he said that "output is still up only a little more than 1% from a year ago, which is below potential and still more consistent with monetary policy biased to ease rather than to tighten."