"It's definitely good news, but this predates what happened in August before the turmoil, losses in confidence and lower commodity prices," said David Madani of Capital Economics.
"Clearly there are increased concerns about the fourth quarter and beyond. Certainly the chances of a recession have increased."
July's gross domestic product performance as reported by Statistics Canada on Friday showed the economy advancing by a relatively healthy 0.3 per cent, on top of the 0.2 per cent June handoff.
That sets the economy up for positive growth in the July-September period after a surprising 0.4 contraction in the second quarter, the result of temporary supply disruptions following the Japanese natural disaster.
The latest data suggests that as supply chains re-established, manufacturing activity returned. The factory sector hammered out a 1.4 per cent gain in the month. Related activities like wholesale trade, utilities, and mining also rebounded.
BMO Capital Markets economist Douglas Porter said that even if GDP comes in flat in the upcoming August and September reports, the quarter would still post a 1.3 per cent annualized advance in the third quarter.
Looking backwards, July shows the Canadian economy was "not flat on its back" heading into August's trauma, Porter said.
"We'll take good news where we can find these days," he added.
Given the magnitude of the headwinds since July, with constant speculation of a Greek default and a liquidity crisis in Europe, along with a potential slowing in China, markets continue to behave as if they don't know whether a disaster has been averted or whether the economy has already been jumped out the window.
The Toronto exchange was trading down all day Friday, and the loonie barely took notice of what would under normal circumstances been a good omen. It too was down all day, at times as much as a penny.
Porter noted most of the bad news to date has been one of sentiment, such as confidence readings. But predictions of a hard landing continue.
The respected Economic Cycle Research Institute was the latest Friday to warn the U.S. was tipping into a new recession, adding that "there's nothing that policy-makers can do to head it off."
In Canada, no major forecasting group has predicted a recession, although several bank economists have given odds as high as 30 or 40 per cent. Scotiabank speculated a shallow, so-called technical recession was possible if the third quarter proved weaker than thought, although the July numbers makes that much less likely.
Madani said such talk was beside the point.
"We see the next year or two being a period of sub-par growth, and for eurozone we see period of protracted recession," he said. "There's definitely going to be some headwinds for the next year or two."
The impact on Canadians will be continued stagnant wages, higher unemployment and more pressure on government books.
In a related matter Friday, the Finance Department reported that the federal deficit in July rose by $1.6 billion as corporate revenues fell and government spending rose during the month.
That takes the government's deficit for the first four months of the current fiscal year to $7.1 billion, which the TD Bank says still keeps Ottawa on track to for about a $30-billion deficit for the 2011-12 year.
However, TD economist Sonya Gulati added "if uncertainty on the global stage were to amplify, the government would be hard-pressed to meet medium-term deficit targets."
Canadians will get an early glimpse of the post "August-shock" environment as early as next week.
On tap is data on employment, auto sales, home sales and purchasing managers buying intentions.
"That will give us an early read on how the economy held up or did not hold up in September," said Porter.
The July GDP numbers, while positive, contained some warning signs of softness. Retail sales, which represents about half of consumption, fell 0.7 per cent.
Analysts said a combination of flat incomes, the lack of pent-up demand in Canada and cross-border shopping by bargain hunters likely contributed to the weakness. Whatever the reason, it gives little forward momentum to the economy.
Another yellow light in the report was that the gains were narrowly concentrated on manufacturing, wholesale trade, utilities, and mining following a period of production difficulties. These are unlikely to be repeated going forward, said Derek Holt of Scotiabank.
"Not to beat a theme to death, but we need to keep reminding you of the importance of the inventory cycle," Holt wrote in a note. "Manufacturing inventories are at a two-year high," suggesting a production stall.