Canada’s Economy Posts 0.2% Growth in July, But August May Reveal Fragility

Canada’s economy showed signs of life in July, but the recovery may have been fleeting, according to Statistics Canada. Real GDP rose by 0.2% in July — the first monthly gain after four consecutive declines. Over the second quarter, annualized growth had contracted by 1.6%. 

That 0.2% gain outpaced many economists’ expectations. The agency attributed much of the growth to goods-producing industries, which expanded by 0.6%.

TD economist Marc Ercolao noted that July’s rebound was concentrated in sectors hardest hit by U.S. tariffs, suggesting these industries may be stabilizing post-trade shock.

• Mining, quarrying and oil & gas extraction jumped 1.4% in July, with mining (excluding oil & gas) up 2.6%, and the oil & gas extraction subcategory rising 0.9%. 

• Manufacturing gained 0.7%, led by durable goods (up 1.0%) and non-durables (up 0.4%). 

However, the rebound came with warning signs. In a special report, Statistics Canada highlighted that iron and steel production and ferro-alloy manufacturing plunged 19% in July after the United States doubled tariffs on the steel sector in June. 

On the services side, growth was modest at 0.1%, buoyed by transportation and warehousing (+0.6%) but offset by a 1% decline in retail trade.

Early estimates for August paint a more muted picture: growth is expected to be essentially flat. Gains in wholesale and retail trade may be offset by declines in mining, manufacturing, transportation, and other goods sectors. Statistics Canada

“The Canadian economy took a slightly bigger-than-expected step forward in July, only to stumble again in August,” said CIBC senior economist Andrew Grantham. Benefits and Pensions Monitor+1

In response, the Bank of Canada has already cut its key interest rate by 25 basis points to 2.5%, citing rising risks of economic weakening over inflation.

Even with the July strength, activity in the third quarter is tracking slightly below the Bank’s earlier outlooks. Grantham suggests the central bank may opt for another rate cut as early as October, depending on upcoming inflation and labour data. Ercolao shares a similar view, expecting at least one more cut by year-end if growth remains subdued.