Canada’s economic growth stalled in July as volatility increased ahead of new U.S. tariffs, according to data released Tuesday by Statistics Canada. The agency reported that real gross domestic product (GDP) was essentially flat for the month, with gains in construction and utilities offset by declines in other sectors.

The construction industry rose 1.3 percent in July, marking its fourth consecutive month of growth following declines in late 2025 and early 2026. Non-residential building construction experienced its strongest performance since early 2022, driven largely by activity related to a new hospital project in Toronto. Meanwhile, the utilities sector posted its best monthly growth of the year, buoyed by a 1.7 percent increase in electricity generation, transmission, and distribution. The rise in power demand was attributed in part to a widespread heat wave across Canada that increased cooling needs.

In contrast, output in manufacturing, mining, quarrying, oil and gas extraction, as well as retail and wholesale trade, fell during the month. Economists attribute some of the sector-specific setbacks to one-off disruptions. TD Bank economist Marc Ercolao noted that July’s declines, especially in manufacturing and mining, reflected broader volatility in Canadian growth and several temporary factors.

The flat growth in July followed a robust second quarter, during which Statscan revised GDP growth for June slightly upward to 0.4 percent from an earlier estimate of 0.3 percent, resulting in an annualized rate of 3.3 percent for the quarter. Early data suggested a modest 0.2 percent rebound in August, though these figures are subject to revision.

The August data will partially reflect the impact of new 50 percent U.S. tariffs imposed on a range of Canadian goods starting August 22. These tariffs are expected to exert downward pressure on Canadian growth in the coming months. KPMG senior economist Peter Shannon said preliminary August figures indicated the economy was performing reasonably well before the tariffs took full effect. He projected that the tariffs could reduce GDP by about half a percentage point over a year if they remain in place. Additionally, new U.S. restrictions on Canadian products such as alcohol, dairy, and motorcycles began Tuesday, marking the start of retaliatory trade barriers.

Mr. Ercolao described Canada’s economic pattern since early 2025 as “sawtooth,” characterized by alternating periods of growth and contraction. He suggested that some of August’s reported growth may reflect an early-month surge in U.S. imports ahead of tariff implementation, potentially followed by declines in September. The ongoing trade dispute continues to weigh on vulnerable sectors such as manufacturing and wholesale trade.

BMO managing director Benjamin Reitzes estimated third-quarter GDP growth between 1.5 and 2 percent, aligning with the Bank of Canada’s forecast of 1.5 percent. While acknowledging the challenges posed by tariffs, he emphasized that supportive fiscal measures, including expanded investment incentives by the federal government, will help sustain growth.

The Bank of Canada is scheduled to review new employment, inflation, and business survey data for September before its next interest rate decision on October 28. The central bank has held its benchmark rate steady at 2.25 percent for nearly a year, balancing the need to support the economy against inflationary pressures. Financial markets are currently pricing in a roughly 53 percent chance of a rate hike next month, influenced by persistently high oil prices.

Both economists indicate that the Bank of Canada is unlikely to alter policy in response to July’s GDP data alone. Mr. Ercolao expects the central bank to maintain its current stance through the remainder of 2026, potentially beginning rate increases in 2027 if inflation risks intensify. He noted policymakers will likely monitor upcoming data closely before adjusting monetary policy, weighing the economy’s softness against inflation trends.