Canada Q3 GDP Growth Expected to Slow to 1.5%-2% After Strong Q2 Rebound, Economists Say

11:03 AM EDT, 09/29/2026 (MT Newswires) -- Canada's economy is set for slower growth in the third quarter after a strong rebound in the prior three months, with gross domestic product estimated to have increased 0.2% monthly in August following flat activity in July, according to economists on Tuesday. Most economists expect third-quarter GDP growth to come in at an annualized rate of about 1.5% to 2%, below the second quarter's 3.3% pace but still consistent with a gradual recovery following Statistics Canada's July and August data released Tuesday. "It is still early in the quarter, but given the advanced guidance, Q3 real GDP growth is tracking a solid 2% annualized -- consistent with our expectation for a moderation in growth following a robust second quarter rebound," wrote TD Economics Economist Marc Ercolao in a note. Earlier Tuesday, StatsCan said GDP was flat in July, as expected, while preliminary August data pointed to a 0.2% month-over-month increase. July's flat reading reflected declines in manufacturing, mining, oil and natural gas, and retail trade, which offset a 1.3% monthly jump in construction, added StatsCan. August growth was supported by gains in retail trade and mining, while oil and gas production remained subdued. Economists pointed out the latest data largely predate the newest US tariffs, limiting their usefulness in assessing the impact. Tariffs introduced in late August are expected to put greater pressure on September activity and fourth-quarter growth, particularly by weakening exports and business investment. The United States introduced new tariffs on certain Canadian goods from Aug. 22 after negotiations broke down between the two countries. Canada introduced its own tit-for-tat tariffs against the US in September. "We expect these latest measures to reduce GDP by about half a percent over about a year, mostly through lower exports but with some spillovers to consumption," wrote KPMG Senior Economist Peter Shannon in a note. Markets will closely monitor upcoming employment, inflation and Bank of Canada business-survey data ahead of the BoC's Oct. 28 policy decision, said economists. Elevated energy costs, tighter financial conditions and persistent trade uncertainty continue to pose risks to the outlook. If the trade war persists, economic growth could slow to around 1% annualized as the economy shifts into a lower gear, according to Desjardins Group in a note. Canadian bond yields moved slightly higher following the StatsCan Tuesday release, while the Canadian dollar was little changed against the US dollar, wrote CIBC Economics in a note.