September 29, 2026. Canada’s economy stalled in July, ending three straight months of growth as weakness in manufacturing, mining and trade pointed to a softer start to the third quarter ahead of new U.S. tariffs. The flat reading matched expectations and indicated a weaker start to the third quarter following solid expansion in the previous three months. Gross domestic product was unchanged from June, matching economists’ expectations, according to Statistics Canada data released on Tuesday. The reading came just before a new round of U.S. tariffs took effect in August, adding to uncertainty for Canada’s trade-dependent economy.
"Given the escalation of US trade uncertainty towards the end of August, today’s data will likely be viewed as old news, with even the advance estimate mostly covering a period of time before new tariffs came into effect. Because of that, we suspect that upcoming employment and CPI data will be more important heading into the late October rate decision, as well as the Bank’s own Business Outlook Survey," analysts at CIBC said.
Both goods-producing and services-producing industries were largely unchanged during the month. Goods-producing industries, which account for about one-quarter of economic output, were a key drag on overall growth. Manufacturing output fell 0.9%, its first monthly decline in four months. The drop was largely driven by a 6.2% contraction in petroleum refineries, which offset gains in some other manufacturing industries. Mining, quarrying and oil and gas extraction also weakened, falling 0.5% for a second consecutive month.
The declines in manufacturing and resource-related activity highlighted pressure on Canada’s goods-producing economy at the start of the third quarter. Construction provided some support, rising 1.3% for a fourth straight month, while utilities output increased 1.7%. Those gains helped offset declines across other goods-producing industries. Services activity was also mixed. Retail trade fell 1% in July, while wholesale trade declined 0.4%. Wholesale trade had been one of the largest contributors to Canada’s economic growth in June. The July stagnation followed three consecutive monthly increases and marked a weaker handoff into the third quarter after the economy expanded solidly in the previous three months.
Still, an advance estimate from Statistics Canada pointed to a rebound in August, with GDP expected to increase 0.2% from July. The preliminary gain is expected to be led by stronger output in mining and quarrying as well as a recovery in retail trade. The August estimate, if confirmed, would provide some relief after July’s stagnation, although the economy remains exposed to the effects of U.S. trade measures and weaker activity in several key industries. The Bank of Canada has forecast annualized economic growth of 1.5% in the third quarter, meaning the July slowdown will be closely watched as policymakers assess the economy’s momentum and the potential impact of trade disruptions.
Author: Jaiveer Shekhawat
