Canadian economy grows for first time in four months

Canada’s economy posted its first monthly growth in four months, raising questions about how much room the Bank of Canada will have to cut rates further as policymakers balance signs of resilience with ongoing risks.

Gross domestic product rose 0.2% in July, led by a 0.6% rebound in goods-producing industries after a prolonged slump.

The expansion, though modest, was stronger than many economists expected and comes just weeks after the central bank delivered its first rate cut in half a year. 

The Bank of Canada has signaled it is ready to cut rates again if economic risks intensify, but July’s GDP numbers may give policymakers reason to pause.

Money markets now see the next rate decision as a coin toss, with traders split on whether the bank will cut again or hold steady.

Mining, quarrying, and oil and gas extraction grew 1.4% in July, while manufacturing rose 0.7%, helped by a less pronounced seasonal slowdown in auto production and a ramp-up in oil sands output.

Real estate and rental and leasing posted a 0.3% gain, its fourth straight monthly increase, as home resales picked up in Ontario and British Columbia.

“Growth in July was driven in large part by higher activity at the offices of real estate agents and brokers and activities related to real estate (+3.6%)," Statistics Canada said.

Retail trade, however, fell 1%, and primary metal manufacturing contracted sharply, highlighting ongoing pockets of weakness.

Advance estimates for August suggest GDP was flat, with gains in wholesale and retail trade offset by declines in mining, manufacturing, and transportation.

The Bank of Canada’s next moves will hinge on whether the recent growth proves sustainable.

The central bank’s own forecast is for 1% growth this quarter, but that could be revised at its next meeting. Analysts say upcoming jobs and inflation data will be critical in shaping the October 29 rate decision.

“Unless there is a drastic turnaround in softening employment trends and easing core inflation in September, we think the likelihood for another cut in the October meeting is high,” Claire Fan, senior economist at RBC, previously said.

For mortgage professionals, the latest GDP figures add another layer of uncertainty. Stronger growth could slow the pace of rate cuts, keeping borrowing costs higher for longer.

On the other hand, any renewed economic weakness may prompt the Bank of Canada to act more aggressively, directly impacting mortgage rates and housing demand.