Canada's economy has found its footing. But is it enough to survive the U.S. trade war?
GDP growth surged in the spring. Exports, business investment and household spending showed how Canada can weather the trade war storm. The question is whether it can last.
Resource sector driving growth, but country may need bigger cushion to weather tariffs
Peter Armstrong · CBC News
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Canada's surge in growth in the second quarter of this year couldn't come at a better time.
Data from Statistics Canada show the economy grew at its fastest pace since 2004. Gains were seen in roughly 90 per cent of the economy. Energy exports led the way, but even the heavily tariffed auto industry saw major gains.
Put it all together, and you can see Canada's economy has carved out a small cushion to help weather the next blows from the trade war with the U.S. And economists say Canada needs every inch of it.
"This is genuine resilience, but not immunity from a trade war," says David-Alexandre Brassard, the chief economist with Chartered Professional Accountants of Canada.
Statistics Canada also revised the first quarter's growth figures from 0.0 per cent to 0.1 per cent. As such, Canada's economy did not contract in back-to-back quarters and thus officially avoided even a "technical recession."
"While the economy was weak at the turn of the last calendar year, it wasn't in a recession," wrote Michael Davenport, senior economist at the research firm Oxford Economics.
The numbers had been anticipated by both the statistical agency and most economists in the country.
Douglas Porter, chief economist with BMO Capital Markets, says the boost shows the Canadian economy was turning a corner of sorts after a wildly volatile 18 months.
He says an economy is made up of millions of decisions made every day by consumers and businesses.
"What these numbers are telling us is that a lot of these decisions had started to turn positive through the spring," Porter told CBC News.
However, not all that momentum is going to carry into the third quarter. The preliminary estimate from Statistics Canada is that growth in July was flat.
The latest round of tariffs will only target about five per cent of Canadian exports. But much like the first tranche of tariffs, where they hit, they will hit hard.
And once again, uncertainty will weigh more heavily on the economy than the tariffs themselves.
World wants what Canada sells, analyst says
But not all sectors are equally exposed to tariffs.
Canada's energy sector is booming due to an increase in oil prices. As that industry thrives, you can see its benefits fan out across the country.
Machine and equipment manufacturers in Quebec and Ontario see a rise in demand. Financial firms, lawyers and consultants on Bay Street benefit. Marine logistics companies in B.C. pick up business as exports increase.
Energy analysts say the resource sector is poised to continue driving Canada's economic growth.
"The big money is still to come," said Heather Exner-Pirot, director of energy, natural resources and environment at the Macdonald-Laurier Institute think-tank.
She says the last few months have underscored the point that the world wants what Canada sells. Demand for critical minerals, fertilizers and energy products puts Canada in an enviable position.
"The broader point is we are clearly moving into a commodity cycle upswing, and Canada is particularly attractive this time around," Exner-Pirot told CBC News.
She says Canadian producers will export more and see new investment in resource and energy infrastructure.
But none of that growth is guaranteed, she warns.
"It's extremely important that we don't rest on our laurels. We will do well. But if we have ambition and high expectations, we can do tremendously," Exner-Pirot said.
That difference would matter at any juncture for the economy. But as Canadian businesses weather this next wave of the trade war, it will be especially important to find ways to boost growth in areas less exposed to tariffs — because those areas getting hit are facing very real pain.
ABOUT THE AUTHOR
Peter Armstrong is the CBC's senior business correspondent. He was a foreign correspondent and a parliamentary reporter for CBC News. Peter hosted the business program On the Money and World Report on CBC Radio. He is the author of the CBC newsletter Mind Your Business
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