Canada's July GDP beat expectations, fueling interest rate cut speculation.

Statistics Canada reports that the Canadian economy grew by 0.2% in July,Open a foreign exchange dealer exceeding analysts' original forecast of 0.1%. Strong performance in retail trade and the public sector offset the negative impact of wildfires on some industries, driving the economy's better-than-expected growth. However, preliminary data for August shows that GDP failed to maintain this momentum, leveling off. Growth in oil and gas extraction was counterbalanced by declines in manufacturing, transportation, and warehousing, leading to economic stagnation.

This trend casts doubt on the resilience of the Canadian economy. If GDP remains stable in September, the annualized growth rate for the third quarter may only be 1%, significantly lower than the Bank of Canada's July forecast of 2.8%. This has increased market expectations for a substantial rate cut by the central bank in the near term.

Since June, the Bank of Canada has cut rates by 0.25 percentage points three times and indicated it will continue to do so if necessary. Currently, the money market shows about a 50% chance of a 50 basis point rate cut in the bank's announcement on October 23. BoC Governor Tiff Macklem previously mentioned that further rate cuts would depend on progress in controlling inflation and economic growth.

July's growth was primarily driven by a 0.2% expansion in the service sector, with retail trade standing out. Growth in the public sector, as well as in the finance and insurance industry, partially mitigated the adverse effects of wildfires on transportation, warehousing, and accommodation services. The goods-producing sector also recorded a modest 0.1% increase, driven by gains in utilities and manufacturing.

Currently, the Canadian economy faces uncertainty, making the central bank's next steps a focal point, and further measures to support the economy may be on the horizon.

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