Canada's economy continues to defy adverse global conditions and the guarded expectations of experts, posting a 0.2 per cent advance in July that got the third quarter off to an encouraging start.

The expansion was double consensus estimates — some economists had thought a negative number was possible — although the shine was dulled somewhat by a downward revision for June to 0.1 per cent from 0.2.

Still, analysts said any expansion in the economy, given global economic troubles and Canada's weak export performance for the month, was cause for relief.

"The fear factor of a decline, given an abundance of weak indicators for the month, was avoided," said Derek Holt, vice-president of economics for Scotia Capital.

Positive start

Holt said the third quarter is still expected to be weak, with Scotiabank tracking a one per cent annualized pace. That is half the rate the Bank of Canada predicted in July.

On an annual basis, output was up 1.9 per cent, "consistent with an economy that is still struggling to crack the two per cent growth mark," noted Bank of Montreal's Robert Kavcic.

The most obvious weakness in the month was in the exports sector. Statistics Canada has already reported a $2.3-billion trade deficit for the month, the biggest in nominal terms in history.

But overall, the goods producing sector of the economy had a good month, advancing by 0.2 per cent.

Manufacturing strong

Manufacturing was surprisingly strong at plus 0.6 per cent, and wholesale trade grew by 0.2 per cent. Mining, oil and gas extraction and construction all declined, however.

The output of service industries also rose 0.2 per cent, mainly due to higher retail sales and increases in the finance and insurance sector as well as accommodation and food services.

The public sector — education, health and public administration combined — was essentially unchanged.