Economists see little relief despite Canada's first expansion in months
Canada’s economy expanded in July, marking its first sign of growth in four months, but economists warn that momentum is unlikely to last.
Statistics Canada reported Friday that real gross domestic product grew 0.2% in July, led by gains in goods-producing industries. Mining and quarrying increased 2.6%, while oil and gas extraction rose 0.9%. Manufacturing also grew, alongside advances in transportation and warehousing.
“The Canadian economy took a slightly bigger-than-expected step forward in July, only to stumble again in August,” CIBC senior economist Andrew Grantham said in a note to clients.
An advance estimate suggested growth stalled the following month as wholesale and retail trade gains were offset by declines in energy, manufacturing, and transportation, CTV News reported.
The rebound in July followed a 1.6% annualized contraction in the second quarter, when higher interest rates and US tariffs weighed on economic activity. Statistics Canada noted that steel manufacturing saw one of its sharpest drops since April 2020, with iron and steel mills down 19.1% in July after Washington doubled tariffs.
Despite the July uptick, economists said the recovery remains subdued. “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% (annualized rate) increase in GDP in Q3 – slow but positive growth rather than a repeat of the Q2 contraction,” Royal Bank of Canada assistant chief economist Nathan Janzen said.
The Bank of Canada cut its overnight rate to 2.5% earlier this month, the first reduction since March. Financial Post noted Governor Tiff Macklem cited a weakening economy and easing inflationary pressures. The unemployment rate climbed to 7.1% in August, its highest outside the pandemic in nearly a decade.
Economists expect another cut before the year ends. “Looking forward, we maintain our view that the Bank of Canada has room to cut rates again in the fourth quarter,” Toronto-Dominion Bank economist Marco Ercolao said.
The central bank forecasts about 1% growth in the second half of 2025, but analysts caution that high borrowing costs, weaker consumer spending, and ongoing trade tensions will weigh on momentum.
Despite the July uptick, economists said momentum remains fragile, with borrowing costs, consumer weakness and trade tensions weighing on the outlook.
