Canada's Economy Beats Expectations in Q2, but Rate Cut Still Likely
Canada's economy grew faster than anticipated in the second quarter, with annualized growth reaching 2.1%, higher than both market expectations of 1.6% and the Bank of Canada's forecast of 1.5%. However, despite this positive data, analysts still believe that the central bank is on track to cut rates for a third consecutive time next week.
The latest Statistics Canada data reveals that June growth was flat, and preliminary estimates suggest that there will be no growth in July, indicating potential weakness ahead. This could prompt the Bank of Canada to continue cutting interest rates, as noted by Andrew Grantham, senior economist at CIBC Capital Markets.
The GDP figure released is the final data set before the Bank of Canada's upcoming monetary policy decision, where a rate cut is widely expected. Financial markets now predict an 80% chance of another 25 basis point rate cut on September 4, with two more reductions forecasted for later this year.
While second quarter growth was driven by government spending, increased business investments, and higher consumer spending on services, per capita GDP continued to decline for the fifth consecutive quarter. This economic scenario, coupled with rising unemployment and upcoming mortgage renewals, is putting pressure on the central bank to lower its policy rate.
Bank of Canada Governor Tiff Macklem's recent statements suggest a shift in focus towards boosting the economy rather than solely focusing on inflation suppression. This change in messaging reflects concerns about the weakening economy and the need for further rate cuts.
In summary, Canada's economy showed strong growth in the second quarter, but signs of weakness ahead indicate a possible rate cut by the central bank. This could have implications for consumers, businesses, and investors, as lower interest rates may impact borrowing costs, investment decisions, and overall economic activity. Stay tuned for the Bank of Canada's upcoming decision and its potential impact on the financial markets.