Canada's GDP grew at an annualized rate of 3.3% in the second quarter, with strong domestic demand offsetting external headwinds.

(1) According to data from Statistics Canada, the actual gross domestic product (GDP) in the second quarter grew at an annualized rate of approximately 3.3%, slightly below the market expectation of about 3.4%. However, this figure marks a significant acceleration compared to around 0.3% in the first quarter. The main drivers of this growth were strong exports, household spending, and corporate capital investment.(2) On a quarter-on-quarter basis, economic expansion in the second quarter was about 0.8%, notably stronger than roughly 0.1% in the first quarter, indicating a clear boost in economic growth momentum. The GDP implicit price index rose approximately 2.5% quarter-on-quarter, higher than the previous value, reflecting that domestic pricing pressures are still accumulating.(3) In June, GDP grew by about 0.3% month-on-month, exceeding the market expectation of roughly 0.2%. The May data also remained unrevised. However, Statistics Canada's flash estimate suggests that GDP is likely to remain flat in July, indicating that the momentum at the start of the third quarter may weaken.(4) Previously, the GDP growth rate for the first quarter was revised from the initial negative figure to positive growth. This base effect also provided technical support for the year-on-year figures in the second quarter. Overall, economic activity in the first half of the year showed quarter-by-quarter improvement.(5) The strong GDP data, combined with the earlier release of a significant expansion in the trade surplus, may provide short-term support for the Canadian dollar exchange rate. However, the flash estimate of economic stagnation in July suggests uncertainty about the sustainability of the recovery. The central bank will need to strike a balance between growth resilience and inflationary pressures when evaluating the subsequent policy path.