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    Canada’s Q2 labour productivity falls by 1.0%, the worst performance since late 2022

    by VT Markets
    /
    Sep 3, 2025
    **The Decline in Canadian Labor Productivity** The 1.0% drop in labor productivity in Q2 2025 raises concerns about the Canadian economy’s health. This decline hints at deeper issues, making the Canadian dollar less appealing to investors. As a result, there is growing bearish sentiment, with traders looking to buy put options on CAD futures. This disappointing productivity figure poses a challenge for the Bank of Canada. The latest inflation rate for August 2025 remains stubbornly high at 2.8%, significantly above the bank’s target. Normally, a slowing economy would lead to expectations of interest rate cuts, but declining productivity tends to increase inflation pressure. This may compel the Bank of Canada to keep rates higher for a longer time. The uncertainty has led traders to rethink their rate expectations, dropping the implied probability of a 2025 rate cut below 40% for the first time this year. For the stock market, these figures indicate potential pressure on corporate profits and margins. We expect this to negatively impact the S&P/TSX 60 index, which has already struggled since July 2025. Consequently, many investors are turning to protective strategies, such as buying put options on broad market ETFs, to guard against a possible downturn. **Market Implications** The current economic situation reminds us of the stagflation seen in parts of 2023, where slow growth and ongoing inflation created a tough environment. The combination of weak productivity and persistent inflation suggests that market volatility may rise. Traders should be ready for larger price fluctuations in Canadian assets in the coming weeks. Create your live VT Markets account and start trading now.

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