Despite the CUSMA trade agreement now being subjected to annual reviews after the US refused to sign a 16-year extension, there are good reasons to be optimistic on the Canadian economy in the second half of this year, and into 2027, especially since growth seems to be recovering after stalling in the previous four quarters, BMO Economics wrote in a note.
Real GDP surprised on the high side in April with a 0.5% bounce, and early indications point to additional gains in May and June, said senior economist Robert Kavcic. "This suggests that growth was close to 2% in Q2, after dipping 0.1% in the prior year (including, famously, small declines in the two previous quarters)," Kavcic wrote.
The TSX has also churned out an 11% advance so far this year and was again nearing a record high by week's end, he pointed out.
"What's particularly noteworthy is the sustained nature of the rally. To pick but one metric, the index is up by almost 60% from two years ago, or nearly 55% adjusted for inflation. That latter increase has been topped only three times in the past 65 years-in the late 1970s commodity boom, in the late 1990s tech boom, and in the rebound from the 2009 crash. At the very least, the wealth effect flowing from these heavy gains should support consumer spending (and may help explain, in part, the prices some were willing to pay for said World Cup matches!)," Kavcic said.
Oil and gas output has expanded 6% in the past year and almost 5% annualized over the past three years. The AI boom, with output in computing infrastructure, data processing and related services has jumped more than 10% in the past year.
Nonresidential construction is forging ahead: Many provinces are running aggressive capital spending programs, and the federal government is fast-tracking major projects.
The immediate jump in the defense budget to 2% of GDP has also added C$10 billion to the economy this year.
Canada's financial sector has been resilient to the housing downturn and wave of mortgage renewals, while benefitting from favourable market conditions. "It's not all boom, but it's certainly not all doom in Canada's economy," Kavcic said.