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Canada’s Economy ‘Lost All Momentum’ In July

But one bad month isn't necessarily the start of a trend.
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After surprising the experts with eight strong months of growth, Canada's economy took a breather in July, Statistics Canada reported Friday.

The economy didn't grow at all in the most recent month for which there are numbers, with 11 of 20 industrial sectors growing, and nine shrinking.

It's the first time in many months that Canada's economy hasn't surprised to the upside. Economists had been expecting modest growth of 0.1 per cent for July.

Watch — Finance Minister Bill Morneau on Canada's economy:

Manufacturing, construction, oil and gas, finance/insurance and retail were among the parts of the economy that shrank. Holding up the economy were real estate rental and leasing, accommodation and food services, utilities and wholesale trade.

"The economy lost all momentum at the start of the third quarter," wrote David Madani, senior Canada economist at Capital Economics.

He noted that despite the weak start to the third quarter, "there's still considerable built-in momentum from the strong ending to the second quarter. So, barring another flat reading in August, we aren't overly concerned by one weak monthly GDP report."

Both Madani and TD Bank economist Brian DePratto suggested that July's weak reading means the Bank of Canada is less likely to hike interest rates in the near future — something that could prove to be a welcome relief for indebted Canadian households facing the prospect of higher debt payments.

"It appears that the red-hot growth seen in the first half of the year is likely behind us," DePratto wrote in a client note. But he noted that some of the weakness in this month's report was due to "one-off factors" such as retooling shutdowns at auto plants.

"A resumption of growth in August appears to be a reasonable assumption," he wrote.

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