Canada: Real GDP Took a Summer Break in July

Real GDP was a mixed bag in July following three consecutive months of growth. The goods-producing industry saw no movement, with various offsetting changes across sectors. Under the hood, the construction sector saw its fourth consecutive expansion (1.3% m/m), on the back of gains in engineering, other construction activities and non-residential building construction. Utilities experienced a rebound in July (1.7%), supported by electric power generation, transmission and distribution. In contrast, the manufacturing sector saw its first decline in four months (-0.9%), largely driven by weaker activity in petroleum and coal product manufacturing. Lastly, resource extraction was a drag on growth (-0.5%), attributed to contraction across all subsectors.

Meanwhile, the aggregate services-producing industries posted no headline change as well. Professional, scientific and technical services marked its largest monthly advance since November 2024 (0.3%). Real estate and rental and leasing saw a broad-based expansion in the month (0.2%). Accommodation and food services grew in the month (0.8%) as traveller accommodation saw higher activity, coinciding with the 2026 World Cup External link.. On the other hand, retail trade External link. (-1%) weighed on growth, reflecting decreased activity in most subsectors. In addition, wholesale trade weakened (-0.4%) as most subsectors except building material and supplies wholesalers contracted in July.

The July print resulted in a modest decline in Canada’s real GDP per capita. That said, the commonly used measure of living standards has regained some of its earlier losses as population growth External link. has slowed (graph 2).

Our tracking suggests real GDP growth of around 2.0% annualized in Q3 2026. This is above the Bank of Canada’s forecast published in the July 2026 Monetary Policy Report. That said, the signal from the monthly GDP data should be taken cautiously due to substantial historical revisions in recent years, as suggested in our research External link..

The July GDP figures provide an early reading on the economy as Canada–US trade tensions began to escalate. As stated in our latest outlook External link., higher US tariffs should weigh on growth, push up unemployment and modestly dampen inflation. However, that disinflationary effect could be more than offset by retaliatory tariffs, which would raise Canada’s average effective tariff rate on US imports from below 3% to more than 6% and push prices higher. In addition, sustained high energy prices may further increase the inflationary tailwind as the conflict in the Middle East continues. If combined with stronger real GDP growth than previously expected, this could put pressure on the Bank of Canada to raise rates sooner than our current call for Q1 2027.