08:09 AM EDT, 09/11/2024 (MT Newswires) -- Some forecasters, including the Bank of Canada, had high hopes of an economic recovery and a stabilization of the unemployment rate in the second half of the year, in the wake of interest rate cuts, noted National Bank of Canada.

For several months now, the bank said it has been arguing that, although interest rates are starting to come down, monetary policy is "far too restrictive" for this recovery and stabilization to occur, and recent economic data bears this out.

With the Canadian economy stagnating in June and July, the 2.8% growth expected in Q3 by the country's central bank is now virtually unattainable, according to National Bank.

As a result, gross domestic product per capita continues its downward trend that began in 2022, illustrating the fact that the economy continues to grow below potential and that excess supply continues to increase.

Not only do companies seem to have an excess of inventories, they also seem to have an excess of workers, added the bank. For now, this is limited to a hiring freeze at the macroeconomic level, as evidenced by average job gains of just 6,000 per month over the past three months.

Those trying to enter the job market -- young people and newcomers -- are the main victims of Canada's weak hiring climate.

With widespread inflation a thing of the past in Canada, National Bank believes the door is wide open for the BoC to return its policy rate to neutral (between 2.5% and 3.0%) as soon as possible.

In the meantime, the damage to the labor market could be greater than necessary. The bank anticipates economic growth of just 0.9% this year and 1.3% in 2025, which would translate into an unemployment rate of around 7.4% by mid-2025.