Canada’s economy returned to growth in July, expanding by 0.2% after three consecutive months of contraction, according to data released Friday. The rebound was driven by strength in mining, manufacturing, and wholesale trade.
This uptick follows a 1.6% annualized GDP decline in Q2, raising concerns about a potential recession. While two back-to-back quarters of contraction would meet the technical definition of a recession, a preliminary estimate for August suggests flat growth, which would help Canada narrowly avoid it. However, Statistics Canada cautioned that early estimates are subject to revision.
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Analysts had predicted a 0.1% GDP rise for July, following a 0.1% dip in June. The stronger-than-expected figure pushed Q3 GDP tracking to a 0.8% annualized rate, said Andrew Grantham, senior economist at CIBC Capital Markets.
Goods-Producing Sector Leads Growth
The July rebound was led by the goods-producing sector, which grew by 0.6%—its first expansion in four months. Notably:
- Mining, quarrying, and oil & gas extraction surged 1.4%
- Manufacturing, despite facing U.S. tariff pressures, rose 0.7%
- Wholesale trade and transportation & warehousing each grew 0.6%, with pipeline transportation jumping 2.8%, its strongest monthly gain since September 2022
The services-producing sector, which makes up three-quarters of Canada’s GDP, saw a modest 0.1% increase, buoyed by growth in real estate and transportation.
Real estate and rental/leasing rose 0.3%, hitting a record high for the second consecutive month, while retail trade fell 1.0%, marking the biggest monthly decline across all industries.
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Tariffs and Trade Disruptions Weigh on Outlook
Canada’s economy has cooled notably after a strong start to the year, with U.S. tariffs dampening performance in key sectors. The Bank of Canada acknowledged that trade disruptions have hurt business investment and warned of potential spillover into other areas of the economy.
In response to mounting economic risks, the BoC resumed monetary easing last week, cutting its benchmark rate by 25 basis points to 2.5%. Markets are split on whether the central bank will cut rates again on October 29, with upcoming jobs and inflation data expected to play a key role in the decision.
Market Reaction
Following the GDP release, the Canadian dollar strengthened, trading at 1.3936 per U.S. dollar (71.76 U.S. cents). Two-year government bond yields dipped slightly, down 0.9 basis points to 2.486%.
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