The Bottom Line

The 0,2% increase in July GDP was slightly above Statistics Canada’s 0.1% advance estimate a month ago and broadly confirmed earlier signs that the Canadian economy steadied early in Q3 after contracting in the immediate wake of aggressive U.S. tariffs imposed globally in Q2. 

Production in the heavily trade-exposed manufacturing sector rose 0.7% after posting its largest production decline in Q2 (outside of pandemic lockdowns) since the 2008/09 recession.  And mining output rebounded 1.4% as production bounced back in part from wildfire related disruptions in Q2. 

Industries targeted directly with tariffs remained under pressure — iron and steel manufacturing fell another 19% in July, to 29% below year ago levels, coinciding with a hike in the U.S. tariff rate on steel products to 50% beginning in June.

An earlier advance manufacturing sales report for August reversed more than half of the July increase, and the early wholesale sales report for August released separately this morning showed a 1.3% decline.

But 88% of Canadian exports were still crossing the U.S. border duty free under an exemption from tariffs for CUSMA compliant trade in July. Export volumes ticked higher overall in July and consumer spending has remained resilient to-date.

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. 

The July details

• GDP rose 0.2% in July — the first increase in four months following 0.1% declines in each of the prior three months.
• Goods producing sectors led the increase, bouncing back 0.6% after falling a cumulative 1.6% over the prior three months
• Oil & gas extraction rose 0.9% as production continued to ramp up following wildfire-related disruptions in the spring, and mining excluding the oil & gas sector bounced back 2.6% following a 3% drop in June. 
• Non-residential building construction and engineering construction (both key indicators of business investment spending) rose 0.4% and 0.2%, respectively, although both gains retrace little of large declines over the prior two months. 
• Services output edged up just 0.1% in July — in large part due to a 1% contraction in retail trade that retraced much of a 1.5% rise in June. Broader indicators of consumer spending remain relatively resilient — the earlier released advance estimate of August retail sales was up 1% and our own tracking consumer card transactions has remained relatively resilient.
• Higher home resales boost output at real estate agents and brokers offices (+3.6% in July) 
• The transportation and warehousing sector expanded 0.7%, driven by higher pipeline transportation but also increases in truck, rail, and water transportation.

Source: RBC Economics