Bigger Bank of Canada Rate Cut Now On the Table: Economists Weigh In on Its Impact on GDP

The article discusses the latest GDP (Gross Domestic Product) growth rate in Canada, which was higher than expected by the Bank of Canada. Economists from various banks and research institutions have weighed in on what this means for future interest rates.

Here are some key points summarized:

• The second-quarter GDP growth rate was 2.1%, beating the Bank of Canada’s forecast of 1.9%. However, without government spending, growth would have been lower at 0.7% annualized.
• Economists are divided on whether this means a bigger rate cut is now on the table for the Bank of Canada. Some think it does, while others believe the rate cuts will continue as planned but may be deeper and faster than expected.
• Government spending accounted for 80% of Q2 GDP increase, according to Royal Bank of Canada economist Abbey Xu. This growth was not driven by consumer spending or business investment, which were weak in the second quarter.
• RBC economist Xu also pointed out that on a per-capita basis, GDP is down for a fifth consecutive quarter, and the monthly data reinforces a loss of growth momentum towards the end of Q2.

Overall, while the higher-than-expected GDP growth rate may seem positive, many economists believe it masks underlying weaknesses in consumer spending and business investment. They think this will lead to a bigger Bank of Canada rate cut or deeper cuts sooner rather than later.