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It's been a little over a week since the Bank of Canada delivered its second consecutive rate cut, but markets are already looking ahead to the next rate decision in September.

This week, Statistics Canada revealed that the economy expanded more than expected in May, albeit at a slower pace compared to April. Real GDP growth rose 0.2% in the month vs. 0.3% in April.

But despite growth coming in slightly better than forecast, economists point to the continued poor performance on a per-capita basis, which they say should support continued Bank of Canada rate cuts towards the end of the year.

"While Canada's GDP gains in May and June were a touch better than we expected, this wasn't a medal-winning performance given the strong pace for population growth," noted CIBC’s Avery Shenfeld.

Marc Desormeaux of Desjardins Economics noted that economic output per person has fallen in six out of the past seven quarters, "a streak not previously seen outside of a recession." He suspects that trend will continue in the second quarter based on preliminary results.   

Statistics Canada's flash estimate for June is that growth will continue to ease to just 0.1%, although that's subject to revision when the final figures are released on August 30, 2024.

Implications for the Bank of Canada

Based on the details of this week’s GDP report, several economists from the Big 6 banks believe the Bank of Canada is well-positioned to deliver yet another quarter-point rate cut at its next meeting on September 4.

That would further lower the overnight target rate to 4.25%. That suggests a prime rate of 6.45% for most lenders, which would lower variable rates and other loans such as personal and home equity lines of credit.

"The Canadian economy appears to be showing some resilience in the second quarter, led by a strong showing in the goods sectors," noted TD Economics' Marc Ercolao.

"[But] advanced guidance for June suggests that current strength may not be sustained," he continued, indicating the Bank of Canada is likely to deliver a "couple more" quarter-point rate cuts this year.

Michael Davenport of Oxford Economics agreed, writing that "a slower growing economy, in tandem with further evidence of loosening labour markets, falling inflation and easing wage growth, should allow the Bank of Canada to proceed with another 25-bps rate cut in September."

However, with more than a month before the next rate decision, there's plenty of economic data to be released, and that could influence the Bank of Canada's final decision. Key indicators to watch include employment figures, inflation rates, and consumer spending trends. Any significant deviations from current expectations could prompt the Bank to reassess its approach.

Additionally, global economic developments, such as changes in commodity prices and international trade dynamics, may also impact the Bank's decision-making process.