Canada’s economic growth appears to have stalled in July, according to early industry data cited by RBC Economics, marking a slowdown after monthly gains in real gross domestic product averaged 0.4% between April and June.
Manufacturing, wholesale and retail sales figures for July all pointed to declines in shipments. However, RBC economists Nathan Janzen and Claire Fan noted that manufacturing GDP likely stayed close to flat, since the weakness was concentrated mainly in the petroleum and auto sectors, which carry more weight in sales data than in their actual contribution to domestic production.
Oil and gas output is believed to have held steady in July, as rising non-conventional extraction in Alberta offset a decline in drilling activity. Housing activity rebounded during the month, contributing to another increase in real estate and rental services GDP. RBC cautioned that this momentum likely faded in August as escalating trade tensions weighed on buyer confidence.
Tariff Fallout Set to Show Up in August Data
A preliminary estimate of August GDP is expected to reveal the fuller impact of the breakdown in trade talks between Canada and the United States, after Washington imposed 50% tariffs on 5% of imports from Canada on Aug. 22.
The flat GDP reading for July creates downside risk to RBC’s third-quarter tracking estimate of 1.8% annualized growth. Still, other indicators point to underlying resilience in the economy. Hours worked rose 0.6% in August, job openings remained relatively stable through mid-September, and advance retail sales data for the month climbed 1.3%, in line with RBC’s tracking of card transaction data showing consumers held up late in the quarter.
RBC economists said they expect the new tariffs, like the Bank of Canada, to have a significant but narrow impact given they affect only a small share of Canadian exports. The bank also noted that the tariffs may have spurred a rush of shipments to the U.S. ahead of the Aug. 22 deadline, which could add volatility to third-quarter growth figures.
Bank of Canada Weighing Growth Risks Ahead of October Decision
The strong pace of GDP growth seen in the second quarter is not expected to be repeated to the same degree in the back half of the year as trade tensions continue to build. The Bank of Canada has said the new U.S. tariffs could cut fourth-quarter annualized GDP growth to under 1%.
RBC noted that additional government funding aimed at companies and workers affected by trade disruptions could help offset some of that damage, arguing such targeted support tends to be more effective than blunt interest rate moves in addressing supply shocks tied to trade.
While the central bank is monitoring growth risks, it is also increasingly focused on the possibility that elevated global oil prices and unusually wide refinery margins could spread beyond currently contained inflation pressures. RBC’s base case remains that the Bank of Canada will hold interest rates in the near term before beginning a gradual series of hikes in early 2027, though the bank’s communications suggest the October rate decision will be a close call.
Canadian Economic Indicators, Mid-2025
U.S. Labour Market Holding Firm
Across the border, RBC expects U.S. labour markets to have remained tight in September, with unemployment holding near historically low levels after dipping to 4.1% — the lowest rate since June 2025 — in both July and August. Employment growth is not expected to match August’s surprisingly strong increase of 162,000 jobs, a figure partly inflated by seasonal adjustment quirks in local government education hiring. Layoffs remain low, while an aging population and reduced immigration are also limiting labour supply growth.
This article references reporting from:
