Canada's Economic Growth Moderates in July Amid Ongoing Trade Tensions

The Canadian economy's growth has moderated in July after three strong months, but it still remains on track for a solid quarterly increase. According to Alexandra Ducharme of National Bank of Canada, both goods and services output were flat in July. Despite the slowdown, Statistics Canada estimates that GDP will grow by 0.2% in August.

The current pace suggests that GDP by industry is tracking a 2.0% annualized increase in the third quarter, which would be a relatively solid quarterly advance. This news may ease some of the Bank of Canada's concerns about the economy's ability to withstand trade tensions, but it also raises concerns that higher energy costs could spill over into underlying inflation if economic activity remains resilient.

The prolonged conflict and its impact on oil prices could test the Bank's patience in the fourth quarter. If economic activity continues to be strong, there is a risk that higher energy costs will lead to higher inflation, particularly in the underlying rates.