G7 'Interest Rate Barometer' Expected to 'Hold Steady' in Canada... Recession Warning Lights

Q2 GDP Growth Rate to be Announced on the 1st
Expected to Fall Short of 1.1% Growth Compared to Last Year

Due to the worst wildfire damage in history, Canada’s GDP growth rate for the second quarter of this year is expected to fall to the 1% range. As a shadow of recession looms over the Canadian economy, attention is focused on whether the Bank of Canada will halt interest rate hikes again.

According to major foreign media on the 27th (local time), Canada’s GDP growth rate for the second quarter of this year, to be released on the 1st of next month, is expected to be only 1.1% compared to the same month last year. This is below the Bank of Canada (BoC)’s previous forecast of 1.5%. It is also significantly lower than the previous quarter’s 3.1%. The impact of wildfires that occurred in May and June was substantial.

The economic outlook for the third quarter of this year is even more pessimistic. The third-quarter GDP growth rate is expected to be 1.5%, and pessimism is spreading that the slow growth in the 1% range will continue for a long time. There are concerns that the economic shock will not be insignificant, as 30 ports in British Columbia (BC) province in western Canada, which handle one-third of Canada’s total cargo volume, went on a full strike last month. Steven Brown, Deputy Chief North America Economist at Canada Economics, predicted, “There is a risk that the third-quarter GDP could fall into negative territory due to the port strike in western Canada.”

In the market, considering such economic shocks, there is a forecast that the BoC will abandon its tightening stance at the monetary policy meeting scheduled for the 6th of next month. Carlos Capistran, Head of Canadian Economics at Bank of America, said, “The weak GDP figures will inevitably be a decisive factor at the monetary policy meeting next month.”

[Image source=Reuters Yonhap News]

Initially, the market expected the BoC to choose additional tightening rather than a freeze. Canada’s July Consumer Price Index (CPI) rose 3.3% year-on-year, re-entering the 3% range. Since this greatly exceeds the BoC’s inflation target of 2%, the market expected no pivot (monetary policy shift) until there was confidence that inflation was heading toward 2%.

Earlier, as recession concerns grew at the beginning of this year, Canada was the first among the Group of Seven (G7) countries to freeze interest rates, but then raised them again when inflation did not subside. The BoC maintained a freeze for five months after raising rates from 4.25% to 4.5% in January, then raised rates twice by 0.25 percentage points in June and July to 5.0%. The benchmark interest rate of 5.0% is the highest level in 22 years since 2001.

This content was produced with the assistance of AI translation services.