OTTAWA (Reuters) -Canada’s economy grew faster than expected in the second quarter, led by government expenditure, increased business investments and consumers spending higher on services, data showed on Friday.
The annualized gross domestic product on a quarter on quarter basis rose 2.1%, Statistics Canada said. But on a per capita basis, GDP continued to contract for a fifth consecutive quarter.
The GDP figure is the last data set before the Bank of Canada’s monetary policy decision announcement on Sept. 4 when it is widely expected to cut its benchmark rate for the third time in a row.
Financial markets now see an 80% chance of another 25 basis point cut in rates on Sept. 4, up from 77% before the data were released. They also forecast two more rate reductions this year after September.
The Canadian dollar slightly extended its gains for the day, rising 0.1% to C$1.3467 to the U.S> dollar, or 74.26 U.S. cents.
Analysts polled by Reuters had forecast GDP growth of 1.6% for the second quarter on an annualized basis and growth of 0.1% month over month in June.
On a monthly basis, GDP growth was unchanged in June and an advance estimate for July shows yet another month of flat growth, Statscan said.
Economic growth for the first quarter was revised to 1.8% from 1.7% reported earlier in May, it said.
Most economic indicators have pointed to an economy that is losing momentum under the burden of high interest rates, increasing bets for a rate cut.
Rising unemployment and a wave of mortgage renewals coming up next year have added more pressure on the central bank to reduce its policy rate.
BoC Governor Tiff Macklem, during his monetary policy announcement in July, had hinted at shifting the bank’s focus towards boosting the economy rather than suppressing inflation, which economists said was a marked shift in messaging showing concerns around weakening economy.
The BoC had forecast an annualized GDP growth of 1.5% in the second quarter and predicts GDP to clock growth of 1.2% this year.
The bank has trimmed its benchmark rate twice since June to bring it down to 4.5%.
The quarterly increase in the economy was led by government expenditure which expanded by 1.5% on account of higher wages, and business investment on machinery and equipment which surged by 6.5%.
However, on a monthly basis, June’s stagnant economy followed 0.1% growth in May and was primarily driven by the largest contraction since December 2023 in the goods-producing industries, the statistics agency said.
(Reporting by Promit Mukherjee and David LjunggrenEditing by Dale Smith and Frances Kerry)
