By Promit Mukherjee
OTTAWA (Reuters) -Canada’s economic system grew sooner than anticipated within the second quarter, knowledge confirmed on Friday, however analysts mentioned the central financial institution was nonetheless on observe to chop charges for a 3rd consecutive time subsequent week.
Statistics Canada knowledge confirmed second quarter annualised development got here in at 2.1%, above the 1.6% anticipated by markets and the 1.5% forecast by the Financial institution of Canada (BoC).
However in an indication of coming weak point, June development was flat and Statscan mentioned preliminary estimates confirmed there would even be no development in July.
“Weak momentum heading into the third quarter offers ample motive for the BoC to proceed slicing rates of interest,” mentioned Andrew Grantham, senior economist at CIBC Capital Markets.
The GDP determine is the final knowledge set earlier than the Financial institution of Canada’s financial coverage resolution subsequent week when it’s extensively anticipated to chop its benchmark fee for the third time in a row.
Monetary markets now see an 80% likelihood of one other 25 foundation level minimize in charges on Sept. 4, up from 77% earlier than the info have been launched. Additionally they forecast two extra fee reductions this yr after September.
“From the Financial institution of Canada’s perspective it’s roughly impartial report – I do not assume it modifications something when it comes to the larger image,” mentioned Doug Porter, chief economist at BMO Capital Markets.
Second quarter development was led by authorities expenditure, elevated enterprise investments and customers spending increased on companies, Statistics Canada knowledge confirmed on Friday.
However on a per capita foundation, GDP continued to contract for a fifth consecutive quarter.
The Canadian greenback barely prolonged its beneficial properties for the day, rising 0.1% to C$1.3467 to the U.S> greenback, or 74.26 U.S. cents.
Financial development for the primary quarter was revised to 1.8% from 1.7% reported earlier in Might, it mentioned.
Most financial indicators level to an economic system that’s shedding momentum below the burden of excessive rates of interest, rising bets for a fee minimize.
Rising unemployment and a wave of mortgage renewals arising subsequent yr have added extra strain on the central financial institution to cut back its coverage fee.
BoC Governor Tiff Macklem hinted throughout his financial coverage announcement in July at shifting the financial institution’s focus in direction of boosting the economic system fairly than suppressing inflation, which economists mentioned was a marked shift in messaging exhibiting issues round weakening economic system.
The financial institution has trimmed its benchmark fee twice since June to carry it all the way down to 4.5%.
The quarterly improve within the economic system was led by authorities expenditure which expanded by 1.5% on account of upper wages, and enterprise funding on equipment and gear which surged by 6.5%.
However on a month-to-month foundation, June’s stagnant economic system adopted 0.1% development in Might and was primarily pushed by the biggest contraction since December 2023 within the goods-producing industries, the statistics company mentioned.
