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Canada's economy likely continued to grow in the third quarter, though economists say that growth could stall in the final quarter of the year as new United States tariffs bite.

Economists estimated the economy expanded by two per cent on an annualized basis in the third quarter, beating the Bank of Canada's outlook for 1.5 per cent.

Those calls came after Statistics Canada on Tuesday said gross domestic product in July was flat month over month, but expanded 0.2 per cent in August, according to a flash estimate. The agency also revised June's GDP figure to 0.4 per cent from 0.3 per cent.

Here's what economists think the latest GDP data means for the economy, the Bank of Canada and interest rates.

'Much more resilient': Bank of Nova Scotia

"Canada's economy is proving to be much more resilient in the third quarter than negative nellies feared after a strong second quarter that itself was revised to be stronger this morning," Derek Holt, vice-president of Scotiabank Economics, said in a note.

Statistics Canada boosted GDP's second-quarter annualized growth to 3.8 per cent from 3.6 per cent.

Holt estimates third-quarter GDP will now come in at two per cent annualized.

Slack in the economy — what it is producing versus its capacity to produce — is tightening and "will likely close in 2027," he said.

Holt said inflation will likely "overwhelm" any remaining economic slack, which might force the Bank of Canada to start hiking interest rates.

But he swept aside the threats posed by a new round of U.S. tariffs that took effect this month, saying U.S. President Donald Trump has gifted Canada high commodity prices and an "undervalued" Canadian dollar.

Because interest rate changes take a while to filter through the economy, he is calling for the Bank of Canada to start hiking at its meeting on Oct. 28.

"The Bank of Canada had better get on with it," he said.

'Robust over the summer': Charles St-Arnaud

"Overall, the GDP number suggests the Canadian economy was robust over the summer," Charles St-Arnaud, chief economist at Servus Credit Union, said in a note, but added that growth could slow in September due to the imposition of more tariffs by the U.S.

He said growth isn't the priority of the Bank of Canada, which is more concerned with rising inflation from higher oil prices and the risk that poses to the economy.

"So far, there is no evidence the situation is causing broader inflationary pressure," he said.

That should allow the Bank of Canada to keep rates on hold for the rest of the year, he said, though the central bank could still pull the trigger and hike if inflation breaks free.

'Calm before the storm': CIBC

"Today's data points to a slower, but still solid, pace of growth in the third quarter to follow the surge seen in the second quarter," Andrew Grantham, a senior economist at CIBC Capital Markets, said in a note, adding that CIBC is calling for third-quarter growth of two per cent annualized.

But he said the latest GDP results could represent the "calm before the storm" due to the new U.S. tariffs.

He also said the flash GDP estimate for August by Statistics Canada could be flattering as businesses sought to front-run the new tariffs, which Trump first announced on July 20.

Grantham said GDP could slow to less than one per cent annualized in the fourth quarter because of the tariffs and their impact on consumer and business confidence.

CIBC is calling for the Bank of Canada to hold interest rates through the remainder of 2026 before hiking in early 2027.