07:45 AM EDT, 08/26/2024 (MT Newswires) -- Canada's gross domestic product (GDP) report on Friday is expected to show further weakening in the Canadian economy, said RBC.

The bank expects a 1.4% (annualized rate) increase in GDP in Q2 -- below Statistics Canada's 2% preliminary estimate a month ago, and marking the seventh of the last eight quarters of declining output on a per-capita basis.

Growth in GDP in Q2 is expected to have mainly come from personal spending on services, which continued to grow despite signs from RBC's tracking of card transactions that momentum faded later in the quarter. Spending on goods likely weakened again, consistent with a drop in retail sale volumes in Q2 (-0.3%).

Residential investment is expected to slip, largely due to weaker home sales during that quarter. However, investment on structures likely saw "solid" growth, supported by stronger activities in engineering and other construction sector.

The bank estimates growth momentum faded late in the quarter with June output declining 0.1% m/m -- weaker than the 0.1% increase in the advance estimate a month ago. A large drop in manufacturing sale volumes (-2.1%) and a drop in oil & natural gas drilling activity should leave goods production down 0.5%.

Meanwhile, RBC predicts output in the service-providing sector remained flat, showing little change from May. Wholesale sale volumes fell by 0.9% in June, a second consecutive monthly decline. Retail sale volumes were little changed (up 0.1% in June) but a 3.4% tick up in home resales will provide some offset.

Overall, the Canadian economy very likely continued to soften on a per-capita basis (both in June and Q2 as a whole) given still-strong population growth, according to RBC. That should help to reinforce the Bank of Canada's (BoC) view that the economy has softened enough to keep inflation on a downward trajectory.

The bank continues to expect the BoC to cut the overnight rate by another 25 bps in September.