Canada's economy grew more than expected in the second quarter on business spending, mostly on machinery and equipment such as aircraft and other transportation gear. UNSPLASH/Tolu Olubode

Canada’s economy grew more than expected in the second quarter, boosted by a jump in business investment and strong government spending.

Output grew 2.1 per cent on an annualized, quarter-over-quarter basis in the May-July period, the statistics agency said Friday. That exceeded the consensus forecast from economists and the Bank of Canada’s most recent projection.

Business spending on machinery and equipment increased by an annualized 6.5% in the second quarter, led by higher spending on aircraft and other transportation equipment and parts.

Government spending increased by the most in more than three years. Statistics Canada cited retroactive payments associated with arbitration decisions for members of the Ontario Secondary School Teachers' Federation and Elementary Teachers' Federation of Ontario as a major contributor to government spending.

On a per-capita basis, however, Canada’s GDP fell for a fifth consecutive quarter.

The latest report will ease pressure on the central bank to accelerate planned rate cuts. The Bank of Canada is widely expected to reduce borrowing costs for a third time this year at its meeting next week.