Canada on Tuesday reported that gross domestic product rose 0.2% monthly in July, snapping a three-month streak of decline and easing some fears among policymakers and businesses about a looming recession.
Data out on Friday showed mining, manufacturing and wholesale trade had all gained to drive the rebound.
This follows an annualised decline of 1.6% for the economy during the second quarter, raising the spectre that additional contraction could push the country into a technical recession.
The July data had been watched closely by economists who were trying to tell if Canada was in the clear, or headed for two back-to-back quarters of negative growth.
The August outlook indicates stagnation
While July’s performance suggested a minor improvement, Statistics Canada’s preliminary estimate for August indicated flat growth.
The agency warned that increases in service-producing businesses were anticipated to be counterbalanced by decreases in goods-producing sectors. The estimate, however, is subject to revision and may alter once final data is available.
Despite the uncertainties, the prediction suggests that Canada will narrowly avoid another contraction, leaving the economy in a vulnerable position heading into the fall.
Analysts polled by Reuters projected a 0.1% growth in July after a 0.1% contraction in June, so the actual 0.2% increase was a minor positive surprise.
Trade disruptions weigh on growth
The recovery comes amid turbulent trade. Tariffs imposed by the United States on industries that are key to the Canadian economy have slowed the economy, which started the year on a firmer footing.
Trade disruptions and tariffs have already weighed on business investment, and the Bank of Canada has cautioned that they could soon start spilling over to other areas of the economy.
Data for July provided some cheer in those goods-producing sectors that account for about a quarter of monthly GDP. It was the sector’s first monthly increase in four months, helping to offset weaker performances in retail as well as other consumer-facing activities and growing 0.6% in July.
Mining and manufacturing lead the gains
Resource-intensive industries made the greatest contributions to growth. Mining, quarrying, and oil and gas extraction increased by 1.4%, delivering the most significant single boost to GDP.
The manufacturing sector, which accounts for about one-tenth of the GDP and is especially exposed to US trade policies, rose 0.7%. This constituted its second-fastest rate of growth.
The services sector, which accounts for around three-quarters of GDP, rose by only 0.1%. Wholesale trade, transportation, and warehousing all increased by 0.6%, helping to boost the economy’s services sector.
Transport, real estate provide support
Transportation and warehousing, which contracted 0.7% in June, rose 1.5% as pipeline transportation spiked 2.8%. According to Statistics Canada, it was the largest monthly increase in the subsector since September 2022.
The increase in activity for real estate and rental, and leasing was 0.3% in July, the highest level on record for the second consecutive month.
This was mainly owing to the uptick in activity in the offices of real estate agents and brokers, indicating persistence in strength in the housing-related services category.
Retail trade pulls back
Not all sectors benefited from the resurgence. Retail commerce fell the most this month, by 1%, following a strong expansion in June.
The downturn emphasised the uneven nature of Canada’s recovery and the continued obstacles to consumer spending.
Overall, July’s growth provided some relief from recession fears, but the outlook remains clouded by trade tensions and sluggish investment.
The economy is still showing indications of strain from US tariffs, and the modest projection for August highlights the fragility of the recovery.
With the goods-producing industries driving the July rebound and services offering just limited assistance, Canada’s development path appears uneven.
Whether the economy can maintain momentum through the third quarter will be key to avoiding a technical recession.
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