Canada's gross domestic product (GDP) rebounded 3.3% in the second quarter, and matched consensus estimates, but new trade restrictions are casting a shadow over the outlook.
June's GDP rose 0.3% in June and that was partly due to economic activity surrounding the FIFA World Cup. "As a result, it's no surprise that the flash estimate for July GDP shows no growth occurred during the month, with the tailwind from the World Cup fading, Desjardins Head of Macro Strategy Royce Mendes wrote in a note.
For TD Economics Senior Economist Andrew Hencic, the new US tariffs and Canadian counter-tariffs, along with the prospect of further escalation, is "hard to dismiss". Hencic calculated the new taxes would likely shave 0.3 to 0.6 percentage points from growth over the next year. Canada could still eke out a mid-1% GDP growth through 2027, but further escalation of the trade war would bring this figure down, he said.
The Bank of Canada is also expected to remain on the sidelines for the rest of the year and into 2027, BMO Chief Economist Douglas Porter wrote.