Macquarie economists projected that the Bank of Canada (BoC) is set to reduce interest rates by 50 basis points (bps) in December, with expectations of four additional 25 bps cuts in subsequent meetings. This forecast aligns with the economic trends highlighted in recent employment data for Canada.
In November, Canada saw a surge in employment, adding 51,000 jobs, largely bolstered by significant hiring in the public sector.
However, the unemployment rate increased to 6.8%, due to a sharp rise in the participation rate, which rebounded from a decline observed in September and October. Notably, the number of hours worked decreased by 0.2%, a factor that is expected to negatively impact real GDP growth estimates for the fourth quarter.
The expected moderation in population growth, now assumed to be around 80,000, may persist as a result of changes in immigration policy. This adjustment could signify a continued decline in the future.
The disparity between the current employment growth trend and the breakeven level, which is necessary to maintain a stable employment rate, indicates a potentially expanding output gap.
The Macquarie economists’ outlook, as detailed in their Global Economic and Market Outlook report released earlier this week, suggests that these economic indicators will lead the BoC to implement a series of rate cuts.
The anticipated cuts are intended to bring the overnight rate down to 2.25% by June 2025, starting with a 50 bps reduction in December and followed by four consecutive 25 bps decreases at each subsequent meeting.
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