Canada's Slump Puts Central Bank Easing Back on Track, Rosenberg Says

09:04 AM EDT, 09/10/2025 (MT Newswires) -- The latest Bank of Canada Summary of Deliberations, covering the July 30 rate decision, showed policymakers discussed a 25-basis-point cut in response to a slowing economy and United States tariffs, though no change was ultimately made, Rosenberg Research said.

Since the summary was released Aug. 13, Canada has reported weaker jobs data, including a June SEPH report showing a 32,900 decline and an August Labour Force Survey showing a 65,500 drop, marking the first two-month pullback since April-May 2021.

That should satisfy the conditions of a labor market that softened further, noted Rosenberg Research. There has also been a rather benign set of consumer price index data beneath the surface for July and a weak round of gross domestic product data for the second quarter.

"There are no signs of slack disappearing from the economy. In fact, it is precisely the weak demand conditions that will prevent any lasting inflationary pressures from tariffs - most of which have since been dropped on US goods - from taking hold," Rosenberg said.

The firm also cited its breadth indicator, which measures how widespread economic activity is in Canada. The index slumped to minus 1.4 standard deviations in the second quarter, a "surefire" sign of lacklustre support for economic activity, Rosenberg said.

This marks the second-worst post-pandemic reading, outside of Q4 2022 and the fifth worst on record (data going back to 1998), added Rosenberg. Assuming prior relationships hold, and the old BoC staff report remains prescient, Rosenberg can expect a continued widening in the output gap ahead, with obvious disinflationary implications.

Rosenberg estimates a resumption of the BoC rate-cutting cycle soon, odds of a September cut already rose to 75% following the LFS data on Friday, limiting any room for a sustained rally in the Canadian dollar (CAD or loonie) and with positive implications for the Government of Canada (GoC) bond market and rate proxies in the TSX.

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