TORONTO (Reuters) - The pace of Canadian manufacturing growth eased to a three-month low in July as output and new orders had only modest gains, the RBC Canadian Manufacturing Purchasing Managers' index showed on Thursday.
The index, a gauge of manufacturing business conditions, slipped to 52 in July after adjusting for seasonal variation from 52.4 in June.
A reading above 50 shows growth in the sector.
"Canada's manufacturing sector stayed afloat in July, although conditions were slightly less favorable than on average historically," Craig Wright, chief economist at Royal Bank of Canada, said in a statement.
"We expect the U.S. economy to shift into higher gear in the second half of the year, slowly increasing demand for Canada's exports, and manufacturing goods in particular."
Data released on Wednesday showed U.S. economic growth rose more than expected in the second quarter.
Though strengthening conditions in the United States are a good sign for Canadian businesses, a prolonged recession in Europe and a slowdown in China have challenged Canada's export-driven economy.
The economy grew by 0.2 percent in May from April, according to government data on Wednesday, below forecasts and dampening expectations for growth in the second quarter.
The PMI data on Thursday also showed input costs for Canadian manufacturers climbed in July, hurt by a rise in raw material prices and unfavorable exchange rates.
The Canadian dollar has fallen significantly against the greenback since the start of the year.
But new orders were positive for a fourth successive month in July, driven by greater demand from customers, new product launches and an increase in new export activity.
Editing by Jeffrey Hodgson; and Peter Galloway