The Canadian economy is expected to experience a significant turnaround in the coming year, with growth returning and the Bank of Canada starting to cut its key lending rate. This optimistic outlook was presented by Deloitte Canada in their latest economic outlook report, released on September 28.
Economic Struggles to Ease Next Year
According to the report, Canada’s near-term economic struggles will ease next year as growth returns and the Bank of Canada begins cutting its key lending rate. Dawn Desjardins, chief economist at Deloitte Canada, co-authored the report and provided insight into the expected turnaround.
"We do have an economy getting back on its feet in the first half of next year," said Desjardins. "The recovery will pick up steam in the second half of 2024 because it’s during the time we anticipate the Bank of Canada will be able to pivot from having high interest rates we’re living with today."
GDP Growth Expected to Pick Up
Deloitte Canada estimates GDP will rise by one percent this year and 0.9 per cent next year. This is a significant improvement from their earlier prediction, which showed a more modest growth rate.
Housing Market to Remain Sluggish
Desjardins also noted that the housing market will continue to be relatively sluggish in the near term. This will have a ripple effect on other sectors, as people tend to delay purchasing durable goods like refrigerators and washing machines when they’re not buying new homes.
Strengthening US Trade and Population Growth
Despite the affordability and housing crises, Deloitte Canada believes that strengthening U.S. trade and population growth in Canada will help the country avoid a deeper recession. Canada’s population is set to jump by 2.7 per cent this year, which would be the largest increase since 1971.
Unemployment Rate Expected to Rise
Economists predict that the unemployment rate will hit 5.9 per cent early next year. This would lead to a pullback in hiring and slow down consumer spending. However, Deloitte Canada estimates real consumption on a per capita basis dropped by 1.5 per cent over the last year, more in line with falling real wages and high interest rates.
Consumer Spending Expected to Slow Down
The report suggests that consumer spending this year will grow by two percent but slow to a pace of 1.2 per cent in 2024. Desjardins noted that consumers are taking a step back, with the bank’s rate increases stressing some budgets.
Investment Outlook Remains Muted
For the business sector, Deloitte Canada estimates the investment outlook remains muted in the near term due to cost pressures and economic uncertainties. This will hamper confidence among Canadians and slow down investment in various sectors.
Interest Rates Expected to Fall
Deloitte Canada predicts that the overnight interest rate would fall to a neutral level of three percent by mid-2025.
Overall, Deloitte Canada’s report presents an optimistic outlook for the Canadian economy. While challenges remain, the expected turnaround and growth will likely have a positive impact on various sectors and help the country avoid a deeper recession.
Key Takeaways:
- The Canadian economy is expected to experience a significant turnaround in the coming year.
- Growth returns and the Bank of Canada starts cutting its key lending rate next year.
- GDP growth is estimated at one percent this year and 0.9 per cent next year.
- The housing market will remain sluggish in the near term.
- Strengthening US trade and population growth will help Canada avoid a deeper recession.
- Unemployment rate expected to rise, reaching 5.9 per cent early next year.
- Consumer spending expected to slow down, growing by two percent this year but only 1.2 percent in 2024.
- Investment outlook remains muted due to cost pressures and economic uncertainties.
- Interest rates predicted to fall to a neutral level of three percent by mid-2025.
Sources:
- Deloitte Canada’s latest economic outlook report (released on September 28).
- Interview with Dawn Desjardins, chief economist at Deloitte Canada.
