Economy grew in July, helping dispel fears of another recession

Midsummer growth in the Canadian economy should help calm fears that the country is in or about to enter another recession, economists said after the release of data for July by Statistics Canada.

Real gross domestic product rose 0.3 percent in July after a 0.2 percent increase in June, the agency reported, with manufacturing and, to a lesser extent, wholesale trade and transportation services the main sources of growth.

“While this report largely predates the onset of serious financial market turbulence — which began in earnest in late July — it does suggest the Canadian economy had some decent momentum heading into the turmoil,” BMO Capital Markets economist Douglas Porter wrote in a note to clients.

“The July gain builds in annualized growth of 1.3 percent for all of the third quarter (i.e., assuming no change in the next two months), heavily reducing the risk that Canada has somehow stumbled into a technical recession ahead of the rest of the world.”

Stock and currency markets were rattled earlier this month as a European government debt crisis centred around the possibility that Greece might not be able to pay its debt dragged on and some major U.S. indicators suggested that the economy is still struggling.

That has led some economists to speculate that the global economy could be headed back into a recession, defined as two quarters of economic shrinkage. Canada weathered the first recession better than many countries, thanks in part to the relative strength of its banking system and prudent fiscal management.

The reading of continued July growth, though small, was in line with expectations, said CIBC World Markets economist Emanuella Enenajor.

“Overall, a healthy gain — although recent indicators suggest some potential deceleration in the following months, which should leave third-quarter GDP at around two percent annualized,” Enenajor wrote.

There was also increased growth in utilities and the public sector, the agency reported. Retail trade, mining and oil-and-gas extraction, construction and the finance and insurance sector all decreased.

Statistics Canada said that manufacturing increased 1.4 percent in July after three straight monthly declines. Transportation and warehousing services grew 1.8 percent, mainly due to a return to a more normal level of activity in postal services following labour disruptions in June.

Rail, trucking and air transportation also showed growth in July. Wholesale trade rose 1.5 percent in July, while retail trade fell 0.7.

The output of utilities increased 1.5 percent, as warmer-than-normal temperatures in most parts of the country led to higher demand for electricity.

Construction declined 0.3 percent in July, while activity in the home resale market softened, leading to a 1.1 percent decline in the output of real estate agents and brokers. Mining and oil-and-gas extraction fell 0.3 percent.