Canadian real GDP for the second quarter came in well below consensus expectations, intensifying expectations for further cuts to interest rates.

Second quarter GDP was up at just a 0.4% annual rate. This is well below the first quarter’s 2.% rise, revised down from 2.5%.

“Today’s report removes the last vestiges of hoped-for Canadian resilience to a U.S.-centred slowdown,” says CIBC World Markets. “The near-flat reading for the second quarter, combined with Q1’s less-rosy picture, produced a first half growth reading of just 1.2%. That’s nearly 2% south of the Bank of Canada’s estimate of potential growth. And the second half of the year doesn’t look to offer much relief.”

“Early omens for [the third quarter] do not look good,” agrees BMO Nesbitt Burns. “As the U.S. continues to struggle mightily and weaker domestic profits point to ongoing weakness in employment and capital spending in Canada. Moreover, GDP fell 0.2% in June.”

CIBC expects that second half growth will struggle to hit 1%. “The rapid deterioration in Canada’s growth performance and mounting job losses suggest that the Bank still has at least 75 bps in easing ahead of it,” CIBC predicts.

BMO agrees that the report solidifies more rate easing, without giving a target. “The weak GDP report extends a month-long string of disappointing Canadian economic data. Until the U.S. rebounds, there is little reason to believe domestic growth will revive. This report is not good news for the weak Canadian dollar and raises the odds the Bank will cut further,” it concludes.

BMO says the big disappointment in the second quarter was the consumer. While auto sales roared higher, overall consumption rose just 1.1%.

The mild spring slashed energy usage and services were also sluggish. Exports were weaker than expected, due to a sharp drop in tech sales.

“Consumers were clearly responding to a shocking 5.6% decline in real after-tax incomes, which represents the strongest hit to consumer wallets since 1993,” notes CIBC. “Going forward, the consumption outlook has been tainted by mounting layoffs and heightened consumer weariness over global economic prospects.”