FILE PHOTO: A drone view shows Canada's Prime Minister Mark Carney delivering a speech during a visit to the Ambassador Bridge linking Ontario with Michigan, U.S., as part of his Liberal Party election campaign tour, in Windsor, Ontario, Canada, April 26, 2025. REUTERS/Carlos Osorio/File Photo

By Promit Mukherjee

OTTAWA (Reuters) -Canada's monthly gross domestic product rebounded from three months of contraction to grow by 0.2% in July as mining, manufacturing and wholesale trade boosted growth, data showed on Friday.

Canada's GDP had shrunk in the second quarter by 1.6% annualized and economists were closely tracking the July GDP growth figure to get an indication of whether there will be a contraction in the third quarter.

Two consecutive quarters of contraction are considered a technical recession.

A preliminary estimate showed August would most likely see no growth but avoid a contraction, Statistics Canada said, as increases in services-producing industries were likely to be offset by goods-producing sectors.

The advance estimate is not always accurate and could change.

Analysts polled by Reuters had forecast a GDP growth of 0.1% in July from a 0.1% contraction in June.

"Through the monthly volatility, Q3 GDP is tracking a 0.8% annualized rate, which is better than where it was tracking before today's release," Andrew Grantham, senior economist at CIBC Capital Markets wrote in a note.

TARIFFS HIT CANADA'S ECONOMY

Canada's economic growth was hobbled in the last few months after a strong start this year as a barrage of tariffs from the U.S. hit critical sectors of the economy.

The Bank of Canada has said that trade disruptions and tariffs have significantly hit key sectors forcing business investments down, and there were chances that the malaise might spill over to other sectors in the coming months.

The growth in July was primarily driven by goods-producing industries which contribute roughly a quarter to the monthly GDP. This sector grew by 0.6% for the first time in four months.

The biggest contribution to growth came from mining, quarrying and oil and gas extraction which registered a bump in growth of 1.4%. The manufacturing sector, which is heavily exposed to U.S. tariffs and contributes up to a tenth of GDP, grew by 0.7%, registering the second-fastest growth.

The services-producing sector, which accounts for three quarters of the monthly GDP, was less impressive with a growth of 0.1%, helped by wholesale trade and transportation and warehousing, both of which grew by 0.6%.

The growth in transportation and warehousing sector, which had contracted by 0.7% in the prior month, was driven by a 2.8% increase in pipeline transportation, marking its largest growth since September 2022, StatsCan said.

Real estate and rental and leasing grew by 0.3% in July, posting a new record high for the second month in a row, it said, adding that the growth in July was driven by higher activity at the offices of real estate agents and brokers.

The biggest drop was seen in retail trade which shrank by 1% in July after solid growth in the prior month.

The BoC has said that if the risks to the economy increase further, it will be ready to cut rates again after it resumed rate reduction last week with a cut of 25 basis points in its benchmark rate to 2.5%.

Money markets view the October rates decision as a coin toss with traders split on whether the bank would cut by 25 basis points or hold.

Grantham said the next jobs data and inflation numbers would be crucial in ascertaining whether there could be another rate cut on Oct. 29.

The Canadian dollar strengthened after the GDP data and was trading at 1.3936 to the U.S. dollar, or 71.76 U.S. cents. Yields on the two-year government bonds were down 0.9 basis points to 2.486%.

(Reporting by Promit Mukherjee; Editing by Dale Smith and Nick Zieminski)