08:51 AM EDT, 08/30/2024 (MT Newswires) -- Growth in the Canadian economy was modestly better than expected in Q2, but weak momentum heading into Q3 gives ample reason for the Bank of Canada (BoC) to continue cutting interest rates, said CIBC citing data released Friday.

The 2.1% annualized growth rate in Q2 was slightly higher than a 1.8% consensus estimate and also above the 1.5% the BoC had penciled into its July Monetary Policy Report (MPR), noted the bank.

However, the composition of growth wasn't particularly impressive, with consumer spending almost stalling (+0.6% annualized) and government spending being the largest contributor.

Business investment was also a positive, although mostly offset by a decline in residential structures.

Momentum heading into Q3 was much weaker than anticipated, with June GDP printing flat on the month -- consensus was for 0.1% m/m growth -- and the advance estimate for July pointing to a further stall that month as well, pointed out CIBC.

That leaves early tracking for Q3 at around 0.5% annualized, allowing for modest growth in August and September, which would be well below the 2.8% forecast from the BoC's MPR. Because of that the bank still sees the BoC reducing interest rates by 25bps at each remaining meeting this year.