Canada's unemployment rate rose to a 29-month high of 6.4 percent, data showed on Friday, highlighting that people might be losing jobs as the labour market struggles to absorb a rapidly swelling population.

The jobs report, which also showed that youth unemployment reached almost a decade high barring the pandemic years, prompted money markets to increase bets of a rate cut by the Bank of Canada (BoC) this month to around 56 percent from 40 percent a day earlier.

Economists pointed out that the rising unemployment rate could be indicating that Canada is flirting with recession.

"A sustained deterioration is typically only seen during recessions," Doug Porter, chief economist at BMO Capital Markets, wrote in a note, pointing to the 1.4-percentage-point rise in the jobless rate since January last year.

He said that if the jobless figure was considered independently, it was likely that the central bank would cut rates in July.

Canada lost a net 1,400 jobs in June, Statistics Canada said, against analysts' predictions of 22,500 job gains, in further indications of weakness in economic conditions.

Royce Mendes, head of macro strategy at Desjardins Group, said the sharp rise in the unemployment rate will have many questioning whether Canada has entered a recession.

"Lowering interest rates is the only way to soften the blow from upcoming mortgage renewals and keep any hope of a soft landing alive," he said, adding that the BoC would cut rates by 25 basis points this month and another two rate cuts in the three meetings thereafter.

BoC Governor Tiff Macklem said last month that the labour market had cooled reasonably in recent months, and that achieving the central bank's goal of cooling inflation did not need to involve a sharp rise in unemployment.

There was even room for economic growth and jobs creation without imperiling the bank's target of 2 percent inflation, the governor said. (Reuters)