Bigger Bank of Canada rate cut now on the table: What economists say about GDP

financialpost.com:

Canada’s gross domestic product for the second quarter came in stronger than expected, but the details of the GDP report and the accompanying outlook for the start of the next quarter hinted at a stalling economy, economists warned.

Statistics Canada said Friday second quarter GDP expanded at an annualized rate of 2.1 per cent, beating analyst forecasts for growth of 1.8 per cent and the Bank of Canada‘s projection of 1.5 per cent.

While there were bright spots in the report including strong investment in machinery and equipment, for example, the data also showed that consumers are tired and government spending is playing an oversized role in growth.

Here’s what economists think the latest GDP numbers mean for the Bank of Canada and its next meeting on Sept. 4 when officials are expected to cut interest rates for the third consecutive time.

“Growth in the Canadian economy was modestly better than expected in Q2, but weak momentum heading into the third quarter gives ample reason for the BoC to continue cutting interest rates,” Andrew Grantham, an economist at CIBC Economics, said in a note.

June GDP came in unchanged from the month before and a Statistics Canada early estimate for July forecasts more of the same, Grantham said.

If August and September track along these same lines, Grantham estimates that annualized GDP for the third quarter will come in at 0.5 per cent, well below the Bank of Canada’s 2.8 per cent forecast in the latest Monetary Policy Report (MPR).

There’s nothing in the GDP numbers to  prevent the Bank of Canada from continuing to cut rates, Grantham said.

“We still see the Bank of Canada reducing interest rates by 25 basis points at each remaining meeting this year,” he said.

While second-quarter GDP