Canada’s economy is stabilizing, RBC says

RBC economists Claire Fan and Nathan Janzen say Canada’s economy likely started the second quarter on stronger footing after two quarters of stalled growth.

In a report for the week of June 29, they said they expect real GDP to rise 0.4% in April, in line with Statistics Canada’s preliminary estimate.

The gain is expected to be led by a relatively narrow rebound in mining, oil and gas extraction, with early data pointing to a significant increase in non-conventional oil extraction and oil drilling. Manufacturing GDP is also expected to improve, lifting goods-producing sectors by about 1%.

Service-sector GDP is expected to rise 0.1%, with weaker wholesale activity and flat retail GDP offset by gains in other sectors, including real estate and rentals. Canadian home resales rose in April on a seasonally adjusted basis for the first time since October 2025.

RBC said preliminary monthly GDP data has been prone to revisions, but broader indicators point to firmer activity in Q2. Labour market data improved in May, while home resales rose 5.1% from April, the largest increase since October 2024.

Statistics Canada’s advance indicators also pointed to higher nominal retail and manufacturing sales in May, while RBC’s card transactions tracker suggested consumer spending remained resilient, though slightly softer.

Lower global oil prices should also help if sustained, restoring some household purchasing power and limiting the risk of energy-driven inflation spreading more broadly.

RBC said the combination of firmer growth and easing inflation pressure supports their view that the Bank of Canada will leave rates unchanged through 2026.

“With growth picking up in Q2 and core inflation remaining subdued, we continue to expect no change in interest rates from the central bank in 2026,” Fan and Janzen said.

In the United States, they said the Federal Reserve has tilted more hawkish under new chair Kevin Warsh, with half of Federal Open Market Committee members expecting at least one rate hike in 2026. RBC expects the May U.S. jobs report to show a 145,000 payroll gain and an unemployment rate of 4.3%.

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