Canadian GDP flat in July

After a 0.1 per cent increase in June,Canada's gross domestic product was flat in July, dashing expectations of a 0.5 per cent gain.

"We're not talking about a shot across the bow of the optimists," BMO chief economist Sherry Cooper said. "This is more like a torpedo through the hull."

Strength in manufacturing, wholesale trade, accomodation and food serviceswas offset bydeclines in mining, utilities and the retail sector, Statistics Canada said.

Economists polled earlier by Bloomberg were expecting growth of 0.5 per cent for the month. On an annual basis, GDP 4.6 per centless thanwhere it wasduring the same period last year.

After nine consecutive monthly declines, the manufacturing sector advanced 0.8 per cent during the month. But economists were expecting much more, Cooper said. "This is a shocker," she said.

Within the sector, durable goods manufacturing was up 2.4 per cent. Output of motor vehicles and parts increased 17 per cent, as activity partially resumed on some assembly lines following temporary closures over the last few months.

The output of the mining, and oil and gas extraction sector fell 1.5 per centin July, the ninth consecutive monthly decrease.

Quarterly GDP growth at risk

Both electric power generation and natural gas distribution decreased because of weaker demand attributable to unseasonably low temperatures, particularly in Central Canada.

Activity in municipal public administration fell 1.6 per cent, largely as a result of a strike by municipal employees in Toronto.

When data for the July to September period comes out, Canada is widely expected to post its first quarterly GDP gain since the recession began. But the flat GDP growth in July, "puts even one per centgrowth in Q3 at riskunless we get a neat reversal of this weakness in August," Cooper said.

In a commentary, TD economist Diana Petramala described the economy in July as "disappointing," noting the construction industry posted its ninth consecutive monthly decline.

"While this may seem surprising given the recent strength in housing starts," she said, "new homebuilding continues to be weak, and experience suggests that it could taketwo to fourquarters for the strength in starts to turn into full blown construction activity."