Canada’s Economy Stalls in July as Construction Gains Offset Manufacturing Declines
Statistics Canada reported that real GDP was essentially unchanged in July 2026, ending a three-month expansion streak. Growth in construction and utilities was counterbalanced by contractions in manufacturing, mining, and retail trade, with economists pointing to U.S. tariffs as a source of broader uncertainty.
Real gross domestic product (GDP) in Canada was essentially unchanged in July 2026, according to Statistics Canada. This flat performance marks a slowdown following three consecutive months of economic expansion.
The stagnation resulted from gains in specific sectors being offset by declines in others. The construction sector rose 1.3 per cent, marking its fourth consecutive month of growth. This increase was driven largely by non-residential building activity, which recorded its best month since the start of 2022, primarily due to work on a new hospital in Toronto.
Utilities also contributed to growth, surging 1.7 per cent. This represented the sector's strongest monthly growth of the year, fueled by high power demands for cooling during a heat wave in July.
However, these gains were negated by contractions in other key industries. Manufacturing fell 0.9 per cent, representing the sector's first decline in four months. Mining, quarrying, and oil and gas extraction contracted by 0.5 per cent month over month. Within this group, potash mining dropped 6.4 per cent, the largest monthly decline since September 2025. Retail trade also faced headwinds, with activity at gas stations falling as gasoline prices rose rapidly during the peak summer travel season. Overall, only 10 out of 20 subsectors expanded in July.
Revised data indicated that GDP had increased by 0.4 per cent in June, up from earlier estimates of 0.3 per cent. For the second quarter, Statscan projected an annualized growth rate of 3.3 per cent.
Flash estimates suggest the economy may have picked back up slightly in August, with a projected gain of 0.2 per cent. However, experts warn that significant impacts from new U.S. tariffs are expected to materialize in September and throughout the fourth quarter. New 50-per-cent U.S. tariffs on a range of Canadian goods took effect on Aug. 22.
KPMG projects that if these tariffs remain in effect, GDP could be about half a percentage point lower over the course of a year. BMO economist Benjamin Reitzes tracks third-quarter GDP growth between 1.5 and 2 per cent, aligning with the Bank of Canada’s forecast of 1.5 per cent. The central bank has held its benchmark interest rate steady at 2.25 per cent for nearly a year, though financial markets recently priced in a 53 per cent chance of a rate hike.