Canada's economy stalls in July as factory and retail declines offset a construction boost

Canada's economy hit pause at the start of the third quarter. Statistics Canada reported on Tuesday that real gross domestic product was unchanged in July, with gains in construction and utilities cancelling out declines in manufacturing, mining and retail trade. Ten of 20 industrial sectors grew.

The flat reading follows a strong spring. Second-quarter GDP grew at an annualized rate of 3.3%, and the agency revised June's monthly gain up to 0.4% from 0.3%. Its advance estimate for August shows a 0.2% increase, a figure that will be updated on Oct. 30.

The numbers

• Real GDP, July: 0.0% month over month, in line with Statistics Canada's earlier flash estimate
• Construction: +1.3%, a fourth straight monthly gain
• Utilities: +1.7%, the sector's strongest month this year
• Accommodation and food services: +0.8%
• Manufacturing: -0.9%, the first drop in four months
• Mining, quarrying and oil and gas extraction: -0.5%
• Retail trade: -1.0%; wholesale trade: -0.4%
• August advance estimate: +0.2%

What drove the month

Several of July's moves had one-off causes. Statistics Canada tied the jump in electricity output to a July heat wave that pushed up demand for cooling. Non-residential building construction had its best month since early 2022, driven mainly by a new hospital in Toronto, according to The Canadian Press.

On the downside, TD Economics pointed to an unplanned shutdown at a refinery in southwestern Ontario and production disruptions at a Saskatchewan mine. Potash mining fell 6.4%, its biggest monthly drop since September 2025. At the pumps, sales at gas stations declined as gasoline prices rose quickly during the peak summer driving season. TD also linked the gain in accommodation and food services to higher international travel, likely tied to the World Cup.

Still on track for a decent quarter

Economists did not read the stall as a warning sign on its own. Based on the August estimate, TD said third-quarter growth is tracking about 2% annualized, which it called solid and consistent with its forecast of slower growth after the second-quarter rebound. Desjardins put its own tracking at around 2.0% as well.

TD said the report is unlikely to materially change the Bank of Canada's outlook. The central bank held its policy rate at 2.25% on Sept. 2, and its next decision is Oct. 28.

The risks

The bigger worries lie ahead rather than in July's data. TD expects renewed Canada-U.S. trade frictions and higher energy costs to keep weighing on households and businesses in the near term. It also noted that markets have turned more hawkish: persistent energy pressures raise the risk that inflation broadens, while higher U.S. policy rates and rising global bond yields are tightening financial conditions in Canada.

Desjardins added a note of caution on the data itself, saying monthly GDP figures should be read carefully because they have been substantially revised in recent years.

What it means for you

A flat month does not mean a recession. Growth is still expected to be positive for the quarter, but it is slowing, and the pressures that matter most to households are fuel costs, trade disruptions and borrowing costs. If you are renewing a mortgage or carrying variable-rate debt, it is worth planning for rates to stay where they are or move higher rather than counting on cuts. A slower economy is also a reminder to keep an emergency fund in place. This article is general information, not personal financial advice.

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