Canada's economy was flat in July, new GDP numbers from Statistics Canada show

Canada's gross domestic product was essentially unchanged in July, as the service sector expanded slightly while goods-producing industries shrank.

Statistics Canada reported Friday that the total value of Canada's entire economy was essentially unchanged during the month, with zero per cent growth. Economists had been expecting a slight expansion of about 0.1 per cent.

The manufacturing sector shrank by 1.5 per cent, its biggest contraction in more than two years.

Agriculture and forestry, transportation and warehousing, retail and professional services also shrank.

On the positive side of the ledger, the biggest source of strength was the mining and oil and gas sector, which bounced back after experiencing declines in June due to forest fires. Mining and quarrying grew by 4.2 per cent, while oil and gas extraction rose 1.5 per cent.

The GDP number for July was weaker than economists were expecting, and the early indicators for August look similar, with preliminary numbers showing a 0.1 per cent expansion. That's less than the 0.2 per cent that had been expected.

Worse still, according to Stephen Brown, an economist with Capital Economics, business surveys suggest that the economy "probably contracted in September, which would result in a second consecutive quarterly contraction. While recent employment gains mean it would be a stretch to call this a recession just yet, it will begin to feel like one if employment falls next quarter as we expect."

How population surge is a factor

Claire Fan, an economist with Royal Bank, says the economy expanding by only the thinnest of margins looks even worse considering what we know about the influx of people into Canada's economy right now.

Statistics Canada released data this week showing Canada's population grew by more than a million people in the last year, a surge in workers that should be juicing the economy under ideal circumstances.

But that's not happening. "Some of that stronger increase in population growth has been in a way masking ... slower macroeconomic conditions," Fan said in an interview. Canada's shrinking economy in the second quarter is even worse considering that the population expanded by almost a full per cent.

"If you account for that on a per capita basis, GDP actually declined by over three per cent," Fan said.