Canada's economy grew faster than expected in the second quarter, driven by government spending, increased business investment, and higher consumer spending on services, according to data released Friday. Annual gross domestic product (GDP) on a quarter-to-quarter basis increased by 2.1%, Statistics Canada reported. However, per capita data, GDP continued to decline for the fifth consecutive quarter.
The GDP figure is the last data before the announcement of the Bank of Canada's monetary policy decision on September 4, where it is widely expected to cut interest rates for the third time in a row.
Financial markets now see an 80% chance of another rate cut of 25 basis points on September 4, up from 77% before this data was released. They also forecast two more rate cuts this year after September.
The Canadian dollar slightly strengthened its gains for the day, jumping 0.1% to C$1.3467 against the US dollar, or 74.26 US cents.
Analysts polled by Reuters had forecast GDP growth of 1.6% for the second quarter on an annual basis and growth of 0.1% month-on-month in June.
In monthly terms, GDP growth was unchanged in June, and preliminary estimates for July showed another month of flat growth, Statscan reported.
Economic growth for the first quarter was revised up to 1.8% from 1.7% previously reported in May.
Most economic indicators point to an economy that is increasingly losing momentum under the burden of high interest rates, raising the stakes for interest rate cuts.
Rising unemployment and a wave of mortgage reforms coming next year have added pressure on the central bank to cut policy rates.
BoC governor Tiff Macklem, during his monetary policy announcement in July, had hinted that the bank's focus might shift to stimulating the economy rather than curbing inflation, which economists said was a significant shift in the message of concern over a weakening economy.
The BoC has forecast annual GDP growth of 1.5% in the second quarter and expects GDP to grow by 1.2% this year.
The bank has cut its benchmark rate twice since June to bring it down to 4.5%.
The quarterly economic improvement was driven by government spending which grew by 1.5% due to rising wages, and business investment in machinery and equipment which jumped by 6.5%.
However, in monthly terms, the economy's flatness in June followed May's 0.1% growth and was driven mainly by the biggest contraction since December 2023 in the goods-producing industry, the statistics agency reported.
