Canada's GDP flat in July as a refinery outage offsets a 1.3% construction gain; August seen up 0.2%

Canada's economy stood still in July. Statistics Canada reported Tuesday that real gross domestic product by industry was essentially unchanged (0.0%) for the month, and its early reading for August points to a 0.2% gain.

A flat month sounds like stalling. The sector detail tells a more mixed story: half the economy grew, and a good share of the decline came from specific plants and mines going offline rather than from demand drying up.

What actually pulled July down

Manufacturing fell 0.9%, its first drop in four months. The biggest single contributor was petroleum and coal products, down 5.7%, after unplanned downtime at a refinery in southwestern Ontario cut refinery activity by 6.2% and reduced output of gasoline, diesel and jet fuel. Machinery manufacturing fell 5.1%, giving back most of June's gain.

Mining and energy extraction slipped 0.5%. Potash mining dropped 6.4%, its steepest monthly fall since September 2025, and a category the agency labels other metal ore mining plunged 31.2% because a Saskatchewan mine had problems at its refining facility. Copper, nickel, lead and zinc mining rose 6.5% in the same month.

The consumer side was softer. Retail trade fell 1.0%, with gas station sales down 3.5% as pump prices climbed during peak travel season and general merchandise stores down 2.2%. Wholesale trade slipped 0.4%, led by a 1.6% drop in machinery and equipment wholesaling, which StatCan tied to weaker factory activity.

What held it up

Construction rose 1.3%, its fourth straight monthly gain, with every subsector growing. Non-residential building jumped 2.9%, its fastest pace since January 2022, helped by work on a new hospital in Ontario. Residential building added 0.9%. Utilities gained 1.7% as a July heat wave lifted power demand, and accommodation and food services rose 0.8% on more international visitors.

For a U.S. supplier, that split is the useful part. Canadian demand for building materials and engineering services was rising in July while machinery makers and machinery wholesalers were cutting back. Those are the goods-trade channels most exposed to the cross-border tariff fight, the same backdrop behind the shift in where Canadians' new cars are built and the U.S. ban on Canadian alcohol that started today.

What it means for the Bank of Canada

The Bank of Canada's policy rate sits at 2.25%, where it has been since the October 29, 2025 cut. The next decision is October 28, alongside a new Monetary Policy Report.

In its September 2 statement the bank described a broadening recovery after second-quarter growth of 3.3%, but flagged that upside risks to inflation had increased. CPI inflation has hovered around 3%, mostly because of gasoline, while inflation excluding gasoline was 2.2% in July and core measures sat near 2%. It also said new U.S. tariffs and Canadian counter-measures make the growth outlook more uncertain.

July's report fits that tension. A flat month with an August rebound does not read as the economy rolling over, and the drags were concentrated in refining, mining disruptions and a pullback at the pump. At the same time, fuel is the thread running through both reports: the bank blames gasoline for keeping inflation near 3%, and in July StatCan recorded lower refinery output alongside rapidly rising pump prices and weaker gas station sales. The bank has said it will assess whether the rebound is sustainable and is prepared to adjust policy as needed.

The loonie

The September statement noted the Canadian dollar had appreciated slightly, mainly on U.S. dollar weakness. The chart below shows USD/CAD, where a falling line means a stronger loonie.

What to watch

StatCan will revise the August estimate on October 30, two days after the rate decision, when it publishes the full August numbers and a first look at September. So the Bank of Canada goes into October 28 with only the advance 0.2% figure for August in hand.

Sources: Statistics Canada, GDP by industry, July 2026; Bank of Canada, policy interest rate and 2026 schedule; Bank of Canada, September 2, 2026 rate announcement. This is market information, not investment advice.