The Canadian economy expanded by 0.2 per cent in July, the first sign of growth in four months, led by a rebound in goods-producing industries.
Mining and quarrying activity grew by 2.6 per cent in July and oil and gas extraction rose by 0.9 per cent, Statistics Canada said on Friday. The manufacturing sector and transportation and warehousing also made gains in July, following contractions in June.
However, an advance estimate for gross domestic product showed growth was flat in August, with increases in wholesale and retail trade offset by declines in manufacturing, oil and gas extraction and transportation and warehousing.
According to the tariff scenario in its July monetary policy report, the Bank of Canada expects the economy to rebound slightly following a contraction in the second quarter, with one per cent growth for the second half of 2025.
Economists said the third quarter is tracking to come in below one per cent, a muted recovery following a decline in the second quarter.
“The advance estimate of August GDP was “essentially unchanged” — those estimates have been exceptionally revision prone but would leave overall GDP growth tracking broadly in line with our own forecast for a 0.5 per cent (annualized rate) increase in GDP in Q3 — slow but positive growth rather than a repeat of the Q2 contraction,” said Royal Bank of Canada assistant chief economist Nathan Janzen, in a note.
The central bank opted to cut its overnight rate at its last rate announcement to 2.5 per cent, the first trim since March. Bank of Canada governor Tiff Macklem cited a weakening economy and less upside inflation risk as the reasons for the need for further easing. The unemployment rate hit 7.1 per cent in August, a nine-year high outside the pandemic.
Economists expect growth to continue to drag and are forecasting another cut in the fourth quarter of this year.
“Looking forward, we maintain our view that the Bank of Canada has room to cut rates again in the fourth quarter,” said Toronto-Dominion Bank economist Marco Ercolao, in a note. “The growth backdrop is expected to gradually recover over the next couple quarters, but economic slack will persist.”
Pipeline transportation drove July’s gains in transportation and warehousing and support activities for transportation also rose, driven by the first month of operations at the LNG Canada facility in Kitimat, B.C.
The increase in manufacturing activity in July was largely attributed to the auto parts and auto manufacturing sector, but this was mainly due to a combination of tariffs and seasonal factors.
“July typically sees planned temporary shutdowns at motor vehicle assembly plants in Ontario,” the report said. “However, the impact of these seasonal closures was less pronounced this year due to the continued production slowdown, influenced by factors such as the new tariffs imposed by the United States.”
Primary metal manufacturing contracted by 5.5 per cent in July and iron and steel mill manufacturing recorded its steepest decline since April 2020 during the pandemic, contracting by 19.1 per cent during the month.
Wholesale trade was up for the third consecutive month, with motor vehicle and parts leading the growth and building material also reporting gains.
Retail was down in July, reflecting a drop in consumer spending, with weaker retailing activity for suppliers of food, clothing, books, sporting goods, building equipment and gardening supplies.
The real estate, rental and leasing sector grew for the fourth consecutive month, driven by higher activity by real estate agents and brokers. This was a reflection of rising home resales across the country, including in the Ontario and British Columbia housing markets.
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