By Ketki Saxena
Investing.com -- Earlier today, Statistics Canada data showed that the Canadian economy recorded no growth in July, compared to expectations of 0.1% growth, and after a 0.2% decline in June.
Preliminary figures for August indicate 0.1% expansion.
The Canadian economy is now on track to increase 0.2% in Q3 - well below the Bank of Canada's 1.5% forecast published in its July Monetary Policy Report.
And the data looks even worse in the context of Canada's surging population, up 1.2 million year over year in July - the largest increase on record.
A report by Robert Kavcic, Senior Economist and Director Economics at BMO (TSX:BMO) notes that "In per capita terms, Canada’s real GDP is now on track to be down more than 2% y/y in Q3, a magnitude of decline typically only seen during recession."
The report also notes that Canada's real GDP per capita has been essentially unchanged since the end of 2016, compared to 1.7% annualized growth in the U.S.
And the state of Canada's economy is only likely to worsen, with the lagging impact from the BoC's 150 bps points of tightening last summer about to slam into the Canadian economy.
"The typical 12-to-18 months lags in monetary policy suggest that the most aggressive phase of the tightening cycle (last summer) is about to fully bite", Kavcic writes.
Meanwhile, a surge in bond yields has contributed to pushing borrowing rates even higher.
With these factors in mind, Kavcic notes that "As such, we continue to forecast very little real growth between now and next spring."
As to the implications on today's report on the Bank of Canada's next move, "It's complicated", as the Canadian central bank's efforts to cool inflation are "countered by the inflationary impulse of torrid population growth, still-stubborn core metrics, and lags between turning points in the job market and wage growth".
Money markets are now pricing in a roughly 75% chance the BoC will maintain its policy rate at its meeting next month.