Canada's economy showed signs of a potential rebound in August after growth stalled in July, but trade tensions and weakness in several major industries continue to cloud the outlook.
Key Points
- Canada's GDP was unchanged in July, ending a three-month run of monthly growth.
- Statistics Canada's preliminary estimate points to a 0.2% increase in August.
- Manufacturing, mining, oil and gas, retail and wholesale trade weakened in July.
- Construction and utilities provided important support to the economy.
- The Bank of Canada has projected annualized third-quarter growth of 1.5%.
- U.S. trade measures remain an important risk for Canada's growth outlook.
Canada's economy entered the third quarter on a weaker footing than the strong performance recorded earlier in the year. Gross domestic product was unchanged in July, according to Statistics Canada, ending three consecutive months of expansion.
At the same time, preliminary data suggest that economic activity could pick up in August, with Statistics Canada estimating a 0.2% increase. The figure is an advance estimate and can be revised when the agency publishes the final data.
July Growth Stalled
Canada's real GDP was essentially flat in July compared with June. The result matched economists' expectations but represented a significant slowdown after three consecutive monthly increases.
The weakness was spread across both goods-producing and services-producing industries. Manufacturing output fell 0.9%, while mining, quarrying and oil and gas extraction declined 0.5%.
Petroleum refining was a particularly significant drag, with refinery output falling 6.2% during the month. The decline came as the manufacturing sector recorded its first monthly contraction in four months.
Construction and Utilities Provide Support
Not every part of the economy weakened. Construction increased 1.3% in July, marking its fourth consecutive monthly gain. Utilities also rose 1.7%, their strongest monthly increase of the year.
Those gains helped offset declines in manufacturing and resource-related industries, preventing the overall economy from recording a monthly contraction.
Services Sector Also Mixed
Canada's services economy did not provide enough momentum to push overall GDP higher in July. Retail trade declined 1%, while wholesale trade fell 0.4%.
Some service industries performed better. Professional, scientific and technical services increased 0.3%, while real estate activity rose 0.2%, extending its growth streak to six months.
August Offers a Modest Rebound
The preliminary August estimate offers a more positive signal. Statistics Canada expects GDP to have increased 0.2% from July, with mining and retail activity among the areas expected to contribute to the rebound.
However, the August figure should be treated as preliminary. Statistics Canada is scheduled to publish the official August GDP release on October 30, 2026, meaning the estimate could change before the final number is available.
A Strong Second Quarter Fades Into the Third
July's stagnation followed a comparatively strong second quarter. Canada's economy expanded at a 3.3% annualized rate in the second quarter, according to the data cited in Tuesday's reports.
The flat July reading therefore represents a weaker start to the third quarter. The Bank of Canada has projected annualized growth of 1.5% for the quarter, putting upcoming economic data under close scrutiny.
U.S. Trade Tensions Remain a Risk
Canada's economic outlook remains closely tied to developments in its largest trading relationship. The July GDP data came before new U.S. tariffs took effect in August, meaning the figures do not yet fully capture the potential effects of the latest trade measures.
That makes future manufacturing, investment, employment and trade data particularly important for determining whether the August improvement develops into a broader recovery or remains a short-term rebound.
What It Means for the Bank of Canada
The GDP figures will also be part of the information considered by the Bank of Canada as it assesses the appropriate path for monetary policy.
The July slowdown alone does not establish a broader economic trend. The preliminary August rebound, upcoming employment and inflation data, and the effects of U.S. trade measures will provide additional information about the economy's underlying momentum.
The Bigger Picture
Canada's economy has moved from a strong second quarter into a softer start to the third. July's flat GDP highlights weakness in manufacturing, resources and trade, while the preliminary August estimate suggests activity may be starting to recover. Whether that pickup lasts will depend in part on domestic demand and the impact of continuing U.S. trade measures.
