Canada’s economy outperformed expectations in April, with gross domestic product expanding 0.5% month-over-month, driven largely by a surge in oil and gas extraction concentrated in Alberta. The rebound quieted recession talk, but analysts caution that underlying weakness still points to potential interest rate cuts rather than hikes.
Alberta leads national growth
Statistics Canada does not release monthly provincial GDP figures, but Charles St-Arnaud, economist at Edmonton-based Servus Credit Union, said Alberta likely led the nation. “For Alberta, the details available in the report suggest that economic activity was stronger than in the rest of the country in May, thanks to the strong rebound in oil and gas extraction,” St-Arnaud said.
The 3.7% rebound in oil and gas extraction in April came almost entirely from unconventional sources, with nearly 100% located in Alberta. “Clearly this suggests that on the month, Alberta was way better than the rest of the country, but it’s also a payback from the weakness we had in the month of March,” he added.
Population growth supports Alberta’s economy
Nationally, population shrank slightly in April, but Alberta continued to see inflows, which bolsters economic activity. “Population growth is kind of your baseline growth,” St-Arnaud said. Alberta’s economy grew 2.6% in 2025, outpacing the national rate of 1.6%, according to his data.
Recession fears ease but rate cut bias remains
Douglas Porter, chief economist at Bank of Montreal, said the April GDP beat should quiet recession speculation, but the details suggest monetary policy remains biased toward easing. “The reality is that output is still up only a little more than one per cent from a year ago, which is below potential and still more consistent with monetary policy biased to ease rather than to tighten,” Porter said after the data release.
Earlier in 2026, markets had priced in as many as three rate hikes by the Bank of Canada due to concerns that high oil prices from the Iran conflict would stoke inflation. However, after a U.S.-Iran moratorium, those expectations faded. As of June 30, there was a slightly more than 60% probability of a rate increase at the Bank of Canada’s final 2026 meeting, according to Bloomberg rate swap data.
BMO’s official forecast is for the Bank of Canada to hold its key rate at 2.25% until the end of 2027, but Porter acknowledged that if the economy falters, a cut is more likely. “If something happens that we didn’t foresee, we just think it’s more likely that the Bank of Canada will find the need to cut interest rates rather than raise them,” he said.
