The economy grew by 0.5% in the second quarter, greater than 0.4% first-quarter growth. We expect below-trend growth in a range of 1.25%–1.5% for the full year amid monetary policy restrictiveness that has been more potent than in the U.S.

The pace of headline inflation slowed by more than expected in September. The year-over-year gain of 1.6% was the smallest since February 2021 and down from 2% in August. On a month-over-month basis, broad prices fell by 0.4%, driven by a 7.1% decline in gasoline prices. The pace of core inflation, which excludes volatile food and energy prices, held steady at 2.4% year over year in August

On September 4, for a third consecutive meeting, the Bank of Canada (BOC) cut its overnight rate target by 25 basis points, to 4.25%. The bank noted that the labor market continued to slow and that inflationary pressures had broadly eased, though inflation remained elevated in some areas of the services sector. We foresee the equivalent of one to two additional quarter-point rate cuts this year, which would leave the overnight rate target in a range of 3.75%–4% at year-end.

September’s jobs report was stronger than expected, but the labor market remains at risk from the prospect of restrictive monetary policy eating into demand and, ultimately, corporate profitability. Canada’s economy added 47,000 jobs in September and the unemployment rate fell to 6.5% from 6.6%. Full-time employment gained by 112,000, the most since May 2022. Still, total hours worked fell, as did the labor participation rate, signaling some softening in an otherwise strong report. We anticipate the unemployment rate ending the year around current levels, though risks skew higher as still-restrictive monetary policy could eat into demand and, ultimately, corporate profitability.