The national economy regressed in the second quarter as trade tensions with the US continued to pummel the growth outlook, leading markets to increase their expectations of a September interest rate cut by the Bank of Canada.

Statistics Canada said on Friday morning that gross domestic product (GDP) slowed by 1.6% year over year in the second quarter, slightly more than the central bank had expected, as exports fell amid the ongoing trade war.

Markets priced in a 55% chance that the central bank would cut rates in its next decision, up from around 40% before the announcement, signalling that traders view a reduction as more likely – but still not a cert.

 
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