Key Takeaways

  • 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



    Read the full article.

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