The performance of the Canadian economy in July was above even the most optimistic forecasts, and will pour cold water on calls on the Bank of Canada to ease again, BMO Nesbitt Burns Inc. chief economist Sherry Cooper says.

Cooper’s comments followed the release of Statistics Canada report that gross domestic product rose 0.6% in July, smashing the consensus expectation of a 0.3%-to-0.4% advance.

“This marks the strongest performance in over a year, as the economy was finally not hit by any new shocks in July and even got a small boost from the Stones concert in Toronto,” she said in a report.

TD Bank Financial Group said in a report it expects the second half of this year will still be difficult , but that most of the temporary factors, such as SARS, the blackout, and the forest fires, that have held back the country’s recent economic performance will further unwind.

At the same time, “the U.S. economy will continue to recover, fuelled by a major dose of fiscal stimulus, low interest rates and some rebuilding of inventories,” said Derek Burleton, TD senior economist.

Economists noted the July gains were broad based, with big increases in mining, utilities, construction and manufacturing – i.e. all the goods-producing sectors showed strength. Services output was also better than expected at +0.4%, with the surprise a 0.7% rise in hotel & restaurant activity. This hard-hit tourist sector was still weak compared to a year ago (-3.5%), but bounced back from the weak levels in the spring.

The other notable weak spot in the economy on a year-over-year basis is manufacturing, which is still down 2.4% year-over-year despite the 0.8% month over month rise in July.

“The soaring loonie and sluggish demand in the rest of the world have crimped this sector,” Cooper said. “However, it stands to benefit the most from a full-scale recovery in the U.S. in the year ahead, even with the dead-weight drag of a strong loonie.”

She said, however, a drop in GDP will counter the strong start to the third quarter in August because of the Ontario blackout and the slow recovery, before rebounding in September. “Still, today’s robust result suggests that growth will bounce back in Q3 to a growth rate of around 2-1/2% (annualized) from the 0.3% drop in Q2, but will still trail the U.S. pace of over 5% by a wide margin.”

Burleton said one negative influence unlikely to diminish any time soon is the net drag exerted on Canada’s heavily export-oriented economy from this year’s double-digit appreciation of the loonie. “Accordingly, look for growth rates to remain at the sluggish rate of 2% until early 2004, when a more solid expansion is expected to emerge,” he said.

In a report Monday, RBC Financial Group said good GDP numbers “will mark the start of a much better second half performance in the Canadian economy, setting the stage for a much healthier expansion next year.