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Canadian economy beats forecasts but outlook cautious

Construction work being done on a condominium construction site at Bathurst Street and Fork York Blvd. in Toronto on May 29, 2012.

Deborah Baic/Deborah Baic/The Globe and Mail

Gross domestic product expanded by 0.2 per cent in July, Statistics Canada said today, better than June's revised 0.1 per cent and the 0.1 per cent than economists had expected.

July's gains were driven by the manufacturing and utilities sectors, while mining, oil and gas, and construction suffered setbacks.

Manufacturing, which has been hit of late, bounced back by 0.6 per cent on the heels of June's 0.7-per-cent slump.

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Big ticket items also climbed, by 0.7 per cent, largely due to computers and electronic gadgets.

Retail trade climbed 0.6 per cent.

"While July's real GDP results were somewhat better than expected, the Canadian economy will still be hard pressed to hit the Bank of Canada's 2-per-cent growth forecast in Q3," said Robert Kavcic of BMO Nesbitt Burns.

Senior economy Matthieu Arseneau cited the manufacturing gain as the "big surprise," but doesn't expect it to last.

"Do not extrapolate this performance into the future as we already know that the production has probably led to an inventory overhang in light of declining shipments (down a whopping 2 per cent in July!)," he said in a research note.

"As a result, we already have indications that firms are cutting back on production with manufacturing jobs having declined for a third month in a row in August. This development combined with slowing activity in construction points to declining production in the goods sector."

Toronto-Dominion Bank senior economist Sonya Gulati agreed that manufacturing will have little "staying power" and pointed toward an overall cooling.

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"The world remains a risk-filled one and this uncertain global economic environment should weigh on the trajectory for those areas linked to international trade," she said.

"Manufacturing and transportation are two areas that come to mind. With tired consumers and housing markets beginning to cool, the domestic economic front is running out of gas and energy to steer the Canadian growth engine."

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