Canada's Economy Hits Pause Button in July Amid Trade Headwinds

Canada's gross domestic product (GDP) growth remained flat in July, according to Statistics Canada. The slight decline from the second quarter's strong performance is attributed to a 0.9 percent decrease in manufacturing and a 6.4 percent drop in potash mining.

The construction sector, however, showed a 1.3 percent gain for the fourth consecutive month, driven primarily by activity around a new hospital building in Toronto. The utilities sector also experienced its strongest month of growth this year, with a 1.7 percent surge in electricity generation, transmission, and distribution.

Estimates suggest flat growth to start the third quarter after StatCan projected an annualized growth rate of 3.3 percent in the second quarter. Revised data showed GDP was up 0.4 percent in June, compared with earlier estimates of 0.3 percent.

Peter Shannon, senior economist at KPMG, expects the impact of new U.S. tariffs to meaningfully hit in September and take full effect in the fourth quarter, potentially lowering GDP by half a percentage point over the course of a year. Benjamin Reitzes, BMO's managing director of Canadian rates and macro strategist, projects GDP growth of 1.5 to two percent in the third quarter.