Canadian Economy's Unexpected Growth Fuels Rate Cut Speculations

Canada's economy grew faster than anticipated in the second quarter with a 2.1% annualized rate, surpassing forecasts. Despite this, the Bank of Canada is expected to reduce interest rates due to weak growth momentum. Economic indicators point toward a slowdown, compelling the BoC to focus on stimulating the economy.

Canada's economy grew faster than expected in the second quarter, according to data released on Friday, surprising analysts. Annualized growth hit 2.1%, exceeding the 1.6% expected by markets and the 1.5% forecast by the Bank of Canada (BoC).

However, June's growth was flat and preliminary July estimates show no growth, indicating upcoming economic weakness. "Weak momentum heading into the third quarter gives ample reason for the BoC to continue cutting interest rates," stated Andrew Grantham, senior economist at CIBC Capital Markets.

Financial markets now predict an 80% chance of a 25-basis point rate cut on Sept. 4, higher than the 77% forecast before the data release. The BoC has already cut its rate twice since June, down to 4.5%, aiming to boost a sluggish economy dragged down by high interest rates and rising unemployment.

(With inputs from agencies.)