Canada’s economy slowed in the second quarter, raising speculation that the Bank of Canada (BoC) could deliver a rate cut at its September 17 meeting. But with jobs and inflation data still on the way, the decision isn’t final.
Economy Stumbles in Q2 📉
Statistics Canada reported that GDP contracted by 1.6% year over year, a bigger slowdown than the central bank expected. Exports dropped as trade tensions with the US continued to weigh on growth.
Markets reacted quickly: the odds of a September rate cut jumped to 55%, up from around 40% before the GDP announcement.
Consumer and Housing Strength 🏡💳
Not all the news was negative. Strong consumer activity and a rebound in housing softened the blow from weaker exports.
- Consumer spending surged at an annualized pace of 4.5%
- Residential investment rose 6% after a steep drop in Q1
What the Experts Are Saying 🧑💼
Economists are split on what this means for September:
- TD Bank (Rishi Sondhi): Domestic demand has been stronger than expected, which could support leaving rates unchanged — though the BoC will wait for jobs and inflation data before deciding.
- BMO (Benjamin Reitzes): The slowdown wasn’t a surprise given tariffs. The economy is still moving in line with the BoC’s July forecast, so this report alone likely won’t push them closer to a cut.
- CIBC (Andrew Grantham): Momentum weakened further at the end of Q2 and into Q3. He expects at least a couple of rate cuts this year, with the first potentially coming in September.
What’s Next? 🔮
The upcoming labour force survey (jobs) and CPI inflation report will be critical. If those reports confirm weakness, a September rate cut becomes more likely. Even if the Bank holds steady this time, economists agree more cuts are possible before year-end.
The Canadian economy is showing signs of strain from trade tensions, even as consumer spending and housing show resilience. The Bank of Canada faces a tough choice: act now to support growth, or wait for more evidence before pulling the trigger.
👉 For homeowners and buyers, the September decision could shape mortgage costs and housing trends in the months ahead.