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GDP Flat in July

Canadian Economics

By: Viktor Cicman

    

Real gross domestic product (GDP) was essentially unchanged in July, following a 0.4 per cent rise in June, as both goods-producing and services-producing industries did not see much movement in the month.

  • Construction was the bright spot in the report. This has been its fourth consecutive expansion, with all subsectors seeing growth this month. These increases offset the declines recorded during the final months of 2025 and the beginning of 2026.
  • Dragging down goods producing sectors was manufacturing. The sector decreased 0.9 per cent in July, with the largest monthly losses recorded in machinery and petroleum and coal product manufacturing. Despite the decline, it is worth noting that this is the sector’s first decrease in four months.
  • The mining sector also weighed on goods producing industries. The oil and gas extraction subsector was down 0.3 per cent in July. A 0.7 per cent decline in oil and gas extraction (except oil sands) drove the contraction, coinciding with lower exports of both commodities in July.
  • Retail trade was a weak spot among services. The retail trade sector decreased 1.0 per cent in July, largely offsetting June’s increase. Retail sales at gasoline stations and fuel vendors fell 3.5 per cent in July, reversing most of the gains recorded in the previous month despite rapidly rising gasoline prices during the peak travel season.
  • Some bright spots among services includes accommodation and food services grew 0.8 per cent in July, as both accommodation services and food services and drinking places expanded. The sector was driven by an increase in activity in traveller accommodation which coincided with a rise in the number of international travellers entering Canada.
  • Professional, scientific and technical services expanded by 0.3 per cent in July, marking the sector’s strongest monthly gain since November 2024. Growth was widespread across its industry groups, led by architectural, engineering and related services, which increased 0.5 per cent and benefited from higher levels of construction activity.

Key insights

With the release of today’s GDP estimates, the economy is entering the third quarter on slower footing than the strong rebound observed in the second quarter. Manufacturing, transportation, and wholesale trade, and the oil and gas sector faced headwinds from weaker trade flows and ongoing uncertainty surrounding export markets. Despite these headwinds, the labour market has proven relatively resilient. While employment fell in August, it is still up by roughly 217,000 positions compared with a year ago, and the unemployment rate stands at 6.4 per cent, lower than a year earlier. The strength in employment growth suggests that service-producing industries continue to support economic activity, helping offset weakness in some goods-producing sectors.

Looking ahead to the remainder of the year, risks to the outlook remain tilted to the downside. The most significant risk is further disruption to trade flows arising from tariff measures and broader protectionist policies. Export-oriented industries, including manufacturing, transportation, and wholesale trade, remain particularly exposed. In addition, slower population growth is reducing a key source of economic momentum, weighing on housing demand, consumer spending, and labour force growth. While stable interest rates are providing support to interest-sensitive sectors, it will still be an uphill battle for many businesses and consumers for the second half of the year. As a result, GDP growth is likely to remain modest through the second half of 2026, with service industries continuing to account for the bulk of economic expansion.

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