CIBC: Weaker-than-Expected Trend in Monthly GDP Figures Supports September Interest Rate Cut in Canada

CIBC believes that weaker-than-expected monthly GDP figures support a September interest rate cut in Canada. Real GDP fell 1.6% in Q2, while advance information indicates a 0.1% increase in July. The economy contracted for a third consecutive month in June, with significant declines in the export of goods and decreased business investment. StatsCan attributed the contraction to Q2 driven by these factors. The TSX closed at a record high, boosted by bank earnings, particularly from TD Bank and CIBC.

Canada's economy continued to show signs of weakness in the second quarter, with real GDP declining by 1.6% on an annualized basis, according to Statistics Canada. This contraction, which was more severe than expected, has led CIBC to suggest that a September interest rate cut by the Bank of Canada is likely. The Canadian Imperial Bank of Commerce (CIBC) believes that the weaker-than-expected monthly GDP figures support this stance.

The latest data from StatsCan indicates that real GDP fell 0.1% in June, marking the third consecutive month of contraction. This decline was primarily driven by significant drops in the export of goods and decreased business investment in machinery and equipment [1]. The advance information from StatsCan also indicates that real GDP increased by 0.1% in July, which suggests a modest rebound but does not fully offset the earlier losses.

The Canadian economy's performance in the second quarter was notably weaker than expected. The initial estimates from BMO were for a 0.2% monthly expansion in real GDP for June, but the actual figure was a 0.1% contraction [2]. This downturn is the first quarterly contraction in seven quarters, highlighting the economic headwinds facing the country.

Despite the economic challenges, the Canadian stock market has shown resilience. The Toronto Stock Exchange (TSX) closed at a record high on August 28, boosted by strong earnings reports from major banks such as TD Bank and CIBC [3]. The TSX's performance has been driven by the sectoral gains, particularly in the financials sector, which has seen significant growth in wealth management divisions.

The Bank of Canada has kept interest rates steady at 2.75% at its last three meetings. However, the latest GDP figures have increased the chances of a rate cut in September. Money markets were predicting a rate cut at close to 40% before the GDP figures were released [4]. The central bank may consider a rate cut to stimulate economic growth and support businesses affected by the contraction.

In summary, the weaker-than-expected monthly GDP figures support CIBC's view that a September interest rate cut by the Bank of Canada is likely. The economic contraction in the second quarter, driven by significant declines in exports and business investment, has created a compelling case for monetary policy easing. Meanwhile, the TSX's performance remains robust, indicating that investors are optimistic about the longer-term prospects of the Canadian economy.

References:

[1] https://www.marketscreener.com/news/cibc-says-weaker-than-expected-trend-in-monthly-gdp-figures-supportive-of-september-interest-rate-cu-ce7c50dddb8cff20
[2] https://www.cbc.ca/news/business/canada-gdp-q2-1.7620878
[3] https://www.marketscreener.com/news/canada-gdp-contracts-1-6-in-2q-sharpest-fall-since-pandemic-ce7c50dddb8bff23
[4] https://www.reuters.com/markets/europe/tsx-retreats-all-time-high-profit-taking-2025-08-28/