Economists from BMO, TD, and Scotiabank see little change to the BoC’s cautious outlook
Canada’s economy delivered a modest surprise in July, with GDP rising 0.2% and breaking a three-month streak of stagnation.
The uptick, led by mining, oil, gas, and manufacturing, has prompted leading bank economists to reassess, but not fundamentally alter, their expectations for Bank of Canada (BoC) rate cuts.
BMO’s Benjamin Reitzes said the “solid July increase keeps Q3 GDP on pace to be close to (or slightly better than) our +0.5% annualized growth forecast.”
He cautioned, however, that July’s growth was boosted by an unusual seasonal effect in manufacturing. Normally, auto production drops in July for re-tooling, but tariffs had already slowed production earlier, so that decline didn’t happen. He said this means August could see weaker numbers instead.
Reitzes added, “The Canadian economy continues to hang in there, suggesting no increased urgency for the BoC to cut rates. Still, underlying softness in the economy will likely drive further easing.”
BMO is forecasting a pause in October, followed by 25 basis point cuts in December and March.
TD Bank’s Maria Solovieva pointed to the “stabilizing” effect of July’s numbers. She noted that August’s early estimate showed no growth, but if September stays flat, Canada should avoid a technical recession. She added that third-quarter growth is on track to match the bank’s 0.7% forecast.
Solovieva said, “Below-trend growth and softer labour demand point to enough slack in the economy to justify another Bank of Canada cut in October.”
She also flagged that “job vacancies slipped to 2.6% of total labour demand—the lowest since early 2017,” signaling a weaker hiring appetite.
Scotiabank’s Derek Holt described the GDP figures as “not surprising the BoC.”
He said, “The BoC and street forecast GDP on a quarterly expenditure basis. The numbers we got this morning are monthly income-based numbers. With data available to date, we can’t say that the BoC’s expectations are being meaningfully surprised.”
The BoC has said it could cut rates if the economy worsens, but July’s GDP results might make officials wait. Markets are now divided, with traders unsure if the bank will cut rates or keep them unchanged at the next meeting.
The central bank expects 1% growth this quarter, but that could change at its next meeting. Analysts say new jobs and inflation numbers will be key for the October 29 rate decision.
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