The Canadian economy remains resilient, for now,

despite a softer outturn in July jobs growth. This

followed a very strong report in June and the pace of

monthly GDP has improved in recent months.

While strong immigration flows have improved the

supply of labour, they have also boosted demand

within the economy, with consumption growth very

robust in Q1, at 5.7% quarter over quarter annualised.

The net of these two effects suggests that imbalances

remain in the Canadian economy, with the BoC’s

preferred measures of inflation moving sideways.

In light of this, the BoC has returned to the table with

consecutive hikes in June and July.

But headwinds are coming. Nearly 500bps in

cumulative tightening, increasing mortgage costs, and

large debt burdens will likely weigh on Canadian

consumers in H2.

Businesses will also face higher costs of capital and

tighter lending standards, weighing on investment.

This private sector retrenchment should pull the

economy into recession at the turn of the year.

Therefore, we think the BoC may well have finished its

hiking cycle. But the bar for a September hike is low if

resilience persists and inflation continues to move

sideways.

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