Canada GDP flat in July after expansion pause, August seen up 0.2%

Statistics Canada posted the July figure: real GDP unchanged at 0.0 percent. Real GDP is the inflation-adjusted market value of all final goods and services produced in an economy over a set period. June’s reading had just been revised higher, to 0.4 percent from the earlier 0.3 percent estimate. Output stood 1.4 percent above its level a year earlier. The stall arrived after three straight months of expansion and after a second quarter the agency had measured at 3.3 percent annualized. Both goods-producing and services-producing industries came in flat on the month.

“This morning’s GDP report confirms that the Canadian economy’s rebound lost some momentum in the third quarter. Still, Statistics Canada’s preliminary estimate points to a 0.2% increase in GDP in August,” Alexandra Ducharme of National Bank of Canada wrote.

Work on a new hospital building in Toronto lifted non-residential building construction 2.9 percent. It was the strongest month for that subsector since January 2022. Construction as a whole rose 1.3 percent, its fourth straight monthly gain. Residential building construction advanced 0.9 percent.

A July heat wave across much of Canada raised electricity demand for cooling and carried the utilities sector up 1.7 percent, its strongest month of 2026. Electric power generation, transmission and distribution climbed 1.7 percent, the largest increase since December 2025. Natural gas distribution rose 2.9 percent.

Those gains held the headline still because manufacturing and trade were already moving the other way. Unplanned downtime at a southwestern Ontario oil refinery curtailed production of gasoline, diesel and aviation fuel. Petroleum and coal product manufacturing fell 5.7 percent in the RBC Economics count; other readings put the drop at 6.2 percent. Manufacturing as a whole contracted 0.9 percent, its first decline in four months. Machinery manufacturing alone dropped 5.1 percent.

Mining, quarrying and oil and gas extraction retreated 0.5 percent. Retail trade fell 1.0 percent. Wholesale trade slipped 0.4 percent. Gasoline prices rose rapidly in the peak summer travel season and coincided with a fall in retail activity at gas stations. Rachel Meyers read the July flat spot as a real slowdown in manufacturing and resources rather than a temporary blip.

The agency’s advance estimate restored a 0.2 percent rise for August. “Incorporating this estimate and assuming no growth in September, GDP by industry is tracking a 2.0% annualized increase in the third quarter, which would represent a relatively solid quarterly advance,” Ducharme wrote. “This is likely easing some of the Bank of Canada’s concerns about the economy’s ability to withstand trade tensions, which have recently intensified,” she added.

Abbey Xu of RBC Economics treated the August advance as highly revision-prone. She still read it as consistent with slower third-quarter growth than the second quarter and with an economy remaining in a gradual recovery, and she saw little sign yet of a broad negative hit in August after the tariff date. Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategy, said the same advance left him tracking roughly 1.5 to 2 percent for the third quarter, about in line with the Bank of Canada’s 1.5 percent forecast for the period.

New 50 percent U.S. tariffs on a range of Canadian goods took effect on August 22. August GDP would register only part of them.

“Given the escalation of US trade uncertainty towards the end of August, today’s data will likely be viewed as old news,” wrote Andrew Grantham, senior economist at CIBC Capital Markets. Peter Shannon, senior economist at KPMG, read the August pickup as reinforcing a decent mid-year recovery before those duties arrived. He expected the bite to hit meaningfully in September and take full effect in the fourth quarter. KPMG saw GDP about half a percentage point lower over a year if the tariffs remained.

Bank of Canada Governor Tiff Macklem had already named the cross-currents. “The developments are pulling the economy in different directions,” he said—tariffs a downside risk to growth, elevated oil an upside risk to inflation. Ducharme tied the oil shock to the central bank’s stance. “This has allowed the Bank to remain patient in the face of the oil shock so far, but we think that patience could be tested in the fourth quarter.” She added: “The longer the conflict persists, the greater the risk that higher energy costs spill over more broadly into underlying inflation, particularly if economic activity remains resilient.”

Reitzes noted that Ottawa’s expanded investment incentives should cushion growth. The Canadian economy, in his reading, continued to hang in there despite the trade headwinds.

The overnight rate sat at 2.75 percent, held there since April, and the Bank of Canada’s next announcement was due on October 28. Nathan Janzen, assistant chief economist at RBC, and Claire Fan, senior economist at the bank, put the remaining weight on what had not yet printed. “Incoming data will matter for the October decision, with communications from the BoC continuing to suggest it will be a close call.”

The run of numbers still to land included the September jobs report on October 9 and the September consumer price index on October 19. The Bank would also have a fresh read of its own quarterly surveys of businesses and of consumers before it spoke. Reitzes said those data prints would matter more for the October call than the July GDP release.

RBC’s base case kept the overnight rate on hold through the end of 2026 and then moved into gradual hikes in 2027. The risks around that path were tilted to earlier rather than later moves. Official August industry GDP was due to be updated on October 30, 2026, the next hard number after the advance.