Canada’s economy showed signs of recovery in July, with the monthly gross domestic product (GDP) increasing by 0.2%. This growth was driven by improvements in the mining, manufacturing, and wholesale trade sectors. Following a 1.6% contraction in the second quarter, economists were monitoring the July GDP figures to gauge the potential for a third-quarter contraction, which would indicate a technical recession.
Preliminary estimates suggest that August is likely to see stagnant growth but avoid contraction, as gains in service industries may offset declines in goods-producing sectors. However, it is important to note that these forecasts are subject to change.
Analysts had predicted a 0.1% GDP growth for July, an improvement from the 0.1% contraction seen in June. Despite the modest growth, concerns remain about the underlying weakness in the economy. Benjamin Reitzes, managing director at Bank of Montreal, noted that although the Canadian economy is holding steady, further easing measures may be necessary in the future.
The Canadian economy faced challenges in recent months due to U.S. tariffs impacting key sectors. The Bank of Canada highlighted the negative impact of trade disruptions and tariffs on business investments, raising concerns about potential spillover effects to other sectors.
In July, growth was primarily driven by the goods-producing industries, which contribute about a quarter of the monthly GDP. The mining, quarrying, and oil and gas extraction sector saw a significant 1.4% increase, while manufacturing, despite exposure to U.S. tariffs, grew by 0.7%.
Within the services-producing sector, which accounts for three-quarters of the monthly GDP, modest growth of 0.1% was recorded. Wholesale trade and transportation and warehousing were key contributors to this growth, each expanding by 0.6%.
Notably, the transportation and warehousing sector rebounded from a prior contraction, with a 2.8% increase in pipeline transportation – its largest growth since September 2022. Real estate and rental and leasing also saw growth of 0.3%, reaching a new record high for the second consecutive month.
However, retail trade experienced a decline of 1% in July following strong growth in the previous month. These fluctuations indicate ongoing challenges within the Canadian economy, underscoring the need for continued monitoring and potential policy adjustments.
