Citi economist Veronica Clark noted that Canada's August sector-level GDP fell 0.3% month-on-month (the largest drop since March 2023), significantly weaker than expected, but it did not materially alter the Bank of Canada's policy stance of "pausing the rate-cutting cycle" this week. The central bank had anchored its Q3 growth forecast at an annualized rate of 0.5%, already factoring in weaker economic activity.

Data showed that the mining and oil & gas extraction sector, accounting for 11% of the economy, saw output plunge 2.5% in August, while construction shrank for the sixth consecutive month (cumulative decline of 5.2%). Clark warned: "Monetary policymakers have underestimated the risk of further economic momentum deterioration—with the waning global commodity supercycle (Bloomberg Commodity Index down 13% YTD) and persistent household debt repayment pressures (debt-to-income ratio at 184%), there remains room for an additional 75bps rate cut in 2025-2026."

Analysis indicates that after the Bank of Canada held its policy rate at 4.75%, the premium on two-year government bond yields over U.S. equivalents narrowed to 15bps, the lowest since June 2022. Interest rate swap markets currently price in expectations for the benchmark rate to drop to the 3.75%-4.00% range by Q2 2025.