Kathmandu— Canada's economy experienced a significant rebound in the second quarter of the year, growing at an annualized rate of 3.3 percent after a revised 0.3 percent increase in the first quarter, according to Statistics Canada data released Friday. This growth, driven by strong exports and robust domestic demand, helped the country avoid a technical recession. However, the positive momentum is now threatened by newly imposed tariffs from the United States, creating renewed uncertainty for Canadian businesses and consumers.

Strong Domestic Demand Fuels Growth

Healthy consumer spending and business investment were key drivers of Canada’s economic recovery in the second quarter. Final domestic demand rebounded to 1 percent growth after a minor contraction in the first quarter, signaling increased confidence among households and businesses. Household final consumption expenditure rose by 0.8 percent—the highest level in three quarters—supported by rising wages and government benefits. Business investment also saw a significant turnaround, growing by 2.3 percent after a year-and-a-half of contraction, with increases in both residential and non-residential sectors.

Export Surge Boosts GDP

A substantial increase in exports played a crucial role in the second quarter’s economic performance. Outbound shipments grew by 3.6 percent, marking the largest increase in over three years according to Statistics Canada. This surge in exports contributed significantly to the overall GDP growth and demonstrated Canada's ability to compete in international markets despite ongoing trade tensions.

Tariff Concerns Loom Large

Despite the positive economic indicators, a new round of tariffs imposed by the United States casts a shadow over Canada’s future prospects. President Donald Trump recently announced a 50 percent tariff on $20 billion worth of Canadian exports, prompting Canada to retaliate with its own countermeasures. Royce Mendes, managing director and head of macro strategy at Desjardins, noted that while the economy was on stronger footing heading into August, “the fresh wave of protectionism injects a significant amount of uncertainty into the outlook.” Michael Davenport, senior Canada economist at Oxford Economics, added that escalating trade policy uncertainty, new tariffs, and a shrinking population are expected to slow economic growth in the coming quarters.

Recent Economic Indicators

On a quarterly basis, GDP grew 0.8 percent for the period ended June, an upward revision from the previous quarter’s initial estimate. Second-quarter annualized growth exceeded the Bank of Canada’s July forecast of 2.5 percent. While GDP increased by 0.3 percent in June, advance indicators suggest that economic activity was largely flat in July.

The Canadian dollar experienced a slight weakening following the release of the GDP data, trading down to 72.17 US cents. Economists will be closely watching future economic indicators and trade developments to assess the long-term impact of the new tariffs on Canada’s economy.

(With inputs from Al Jazeera)

Originally published on abcnews.com.np.