What do the latest GDP figures mean for the Bank of Canada?

Canada’s economy shrank in the third quarter, according to Statistics Canada, adding fuel to the narrative that the Bank of Canada will need to lower interest rates soon to avoid a deep recession – but economists have varying views on when to expect cuts.

“We're not thinking the bank is going to move until the second half of next year, maybe around mid-year, simply because we're not convinced that the inflation numbers are going to come in low enough,” David Watt, chief economist at HSBC Canada, told BNN Bloomberg in a Thursday television interview.

Watt said he believes the Bank of Canada will be “cooler” on rate cuts, despite signs of a slowing economy, because it may take some time for inflation to reach the bank’s target rate of two per cent.

Douglas Porter, chief economist with BMO Capital Markets, agrees that rate cuts likely won’t begin until the second half of 2024, despite the fact that markets have been “pulling forward” on when rates in both the U.S. and Canada will start coming down.