Construction Sector Sees Growth Amidst Flat GDP in July

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Despite a stagnant overall economy, the construction sector experienced notable growth in July, highlighted by a surge in non-residential building activities, particularly in Toronto.

OTTAWA — Statistics Canada reported that the gross domestic product (GDP) growth remained largely unchanged in July, following a robust performance in the second quarter. This stagnation occurred even as the construction sector registered a 1.3 percent increase, marking its fourth consecutive month of growth after experiencing declines in late 2025 and early 2026. The agency noted that non-residential building construction had its most successful month since the beginning of 2022, primarily driven by the construction of a new hospital in Toronto.
In addition to construction, the utilities sector also thrived, achieving a 1.7 percent rise in electricity generation, transmission, and distribution, which represented its best monthly growth rate of the year. This surge was attributed to heightened energy demands for cooling as a result of a heat wave affecting many regions across Canada.
Conversely, several sectors faced declines in July, including manufacturing, mining, quarrying, oil and gas extraction, as well as retail and wholesale trade. Manufacturing experienced a 0.9 percent drop, marking its first decline in four months. The mining and quarrying sector was particularly hard hit, suffering a 6.4 percent drop in potash mining—the steepest decline since September 2025. Despite these setbacks, increases in oil sands extraction provided some relief in the oil and gas sector.
Retail activity also saw a downturn, particularly at gas stations, which Statistics Canada linked to soaring gasoline prices during the peak summer travel season. The agency's estimates suggest that the economy may start the third quarter with flat growth, following its earlier projection of a 3.3 percent annualized growth rate for the second quarter. Notably, revised data indicated that GDP rose by 0.4 percent in June, slightly higher than the initial estimate of 0.3 percent.
Looking ahead, Statistics Canada has preliminarily forecasted a 0.2 percent increase in GDP for August; however, these figures will undergo revisions next month. The agency indicated that mining, quarrying, and retail trade are expected to rebound in August, though further decreases in oil and gas extraction may offset this growth.
The forthcoming August GDP figures will also reflect the impact of new U.S. tariffs, which took effect on August 22, imposing a 50 percent duty on a range of Canadian goods. Peter Shannon, a senior economist at KPMG, commented that the anticipated economic rebound in August underscores the Canadian economy's decent mid-year recovery prior to the implementation of the new U.S. tariffs. Shannon warned that these duties are likely to have a significant impact starting in September and could fully manifest by the fourth quarter.
KPMG forecasts that if the tariffs stay in place, they could reduce GDP growth by approximately half a percentage point over the next year. Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, also noted that the anticipated growth for August positions him to project a GDP increase of between 1.5 to 2 percent for the third quarter, aligning closely with the Bank of Canada’s forecast of 1.5 percent.
While the new tariffs present challenges for the economy, Reitzes pointed out that fiscal policy adjustments, such as the Canadian government's initiative to expand investment incentives, could bolster growth. He remarked that despite ongoing trade obstacles, the Canadian economy continues to show resilience.
The Bank of Canada is expected to evaluate new job and inflation data for September, along with its quarterly surveys of businesses and consumers, before announcing its next interest rate decision on October 28. Reitzes suggested that these forthcoming data releases will likely hold greater significance for the central bank's decisions than the July GDP report.

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