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The Canadian economy is losing momentum, but so far is avoiding a contraction as output in July was better than expected.

Real (inflation-adjusted) gross domestic product rose 0.1 per cent in July, stronger than a previous estimate of a 0.1-per-cent drop, Statistics Canada said in a report on Thursday. In a preliminary estimate, the agency said growth was essentially unchanged in August.

With those figures in hand, GDP is on track to grow at an annualized pace of about 1 per cent in the third quarter. That is considerably slower than growth of 3.1 per cent in the first quarter and 3.3 per cent in the second, along with the Bank of Canada’s forecast of 2-per-cent growth.

“The economy fared better than anticipated this summer, but the showing still wasn’t much to write home about,” Royce Mendes, head of macro strategy at Desjardins Securities, said in a note to investors. “The deceleration in economic momentum is why we see the Bank of Canada only hiking rates once more in October.”

The Canadian economy finds itself at a vulnerable point. While it has not slipped into recession, risks are undoubtedly rising as central banks rapidly raise interest rates to curb demand and tame the highest inflation rates in decades. Europe is teetering on recession as its energy bills surge, while Canadian households have loaded up on debt that is pricier to pay off.

Thus far, the Bank of Canada has raised its policy rate to 3.25 per cent from an emergency low of 0.25 per cent in March. Financial analysts expect another increase on Oct. 26, given that inflation – the annual rate was 7 per cent in August – remains far too high.

The hiking cycle appears to be dampening activity on several fronts. Canadian housing markets have entered a lengthy slump. Consumers are starting to spend less – much as the Bank of Canada wants – and employers are tempering their demand for labour.

But the question is whether global central banks will hike too much, too fast, driving their economies into nasty downturns. The Bank of Canada insists that it can engineer a “soft landing,” in which inflation is brought to heel, but without a contraction and widespread layoffs.

A growing number of financial analysts disagree. On Wednesday, Deloitte Canada became the latest private-sector firm to forecast a recession. It projects the economy will shrink in the fourth quarter and the first quarter of 2023, before returning to growth.

“Yes, employment will dip and unemployment will rise, but the starting point of extreme labour scarcity suggests that this economic slump will not have the typical labour market weakness,” read the Deloitte report. “This will help mitigate the depth and duration of the downturn.”

In July, economic growth was bolstered by resource industries. Oil sands extraction jumped 5.1 per cent from the previous month, thanks to an increase in production. Crop production rose 7.2 per cent over the same period.

“Amid the expected rebound in wheat production in the new crop year, as well as the conflict in Ukraine and stronger demand for Canadian wheat, export volumes increased strongly in July,” Statscan said in its report.

Still, there was weakness in other areas. Output fell in manufacturing, retail trade and hospitality in July, among other industries.

Following Thursday’s report, several analysts said the Bank of Canada is nearing the point of pausing its rate hikes, given mounting signs of a slowing economy.

“With inflation still high, policymakers are likely to press ahead with another rate hike next month,” Andrew Grantham, senior economist at CIBC Capital Markets, wrote to clients.

“However, signs of consumer spending weakening even in some service industries, and job vacancy rates starting to come down from previously elevated levels, should see the [Bank of Canada] then take a pause to more fully assess how growth and inflation are responding to higher interest rates.”