(Toronto) Canada’s short-term economic woes will ease next year as growth returns and the Bank of Canada begins lowering its key interest rate, according to a new forecast from Deloitte Canada.
A better-than-expected U.S. outlook and sustained population growth should offset some of the downward pressure from high household debt, soaring interest payments and stubbornly persistent inflation, the Commission said. company in its latest economic outlook report, released Thursday.
“We have an economy that is getting back on its feet in the first half of next year,” said Deloitte Canada deputy chief economist Dawn Desjardins, co-author of the report.
“The recovery will accelerate in the second half of 2024, as that is when we expect the Bank of Canada to be able to move away from the high interest rates we live with today today,” she predicted.
The report estimates that gross domestic product (GDP) will grow by 1.0% this year and 0.9% next year. Deloitte Canada earlier predicted that GDP would contract by 0.9% in 2023.
The next two quarters, however, promise to be difficult for the Canadian economy, underlined Mr.me Gardens.
“The Canadian economy has entered a difficult period and growth will likely be negligible,” she said. In fact, we have a few negative quarters in the forecast. »
The slowdown is the result of the Bank of Canada’s months-long battle with high inflation, which has pushed up household debt and interest payments. According to the Deloitte economist, this will continue in the short term.
Mme Desjardins noted that a third of Canadian households have a mortgage, adding that a growing number of them are deciding to refinance their property as they struggle to keep up with their monthly mortgage payments — a trend that is expected to continue in the near future. ‘future.
“We believe that the real estate market will continue to be relatively sluggish (in the short term),” said Mme Desjardins, which should also affect other sectors.
“When this happens, people don’t buy durable goods like refrigerators, stoves and washing machines that they would normally buy when buying a new home. »
Despite the affordability and housing crisis, Deloitte Canada said strengthening U.S. trade and population growth in Canada appeared to help the country avoid a deeper recession.
Canada’s population is expected to increase by 2.7% this year. The only other time the country came close to this type of population surge was in 1971, when it increased by 2.2%.
Economists suggest that population growth will outpace job creation in the coming months, with the unemployment rate expected to reach 5.9% early next year. A decline in hiring would lead to higher unemployment and, therefore, slow consumer spending.
The record increase in Canada’s population has also caused Deloitte to recalibrate its expectations for consumer spending. The report suggests that real consumption per capita fell by 1.5% over the past year, more in line with falling real wages and high interest rates.
“We are finally seeing that consumers are taking a step back,” said M.me Gardens. The bank’s rate increases are putting some budgets under strain. »
The report suggests that consumer spending will increase by 2.0% this year, but slow to a pace of 1.2% in 2024.
Deloitte Canada estimates that the central bank’s policy rate should decline to the neutral level of 3.0% by mid-2025.
For the business sector, the report indicates that investment prospects remain subdued in the near term, as cost pressures and economic uncertainties undermine Canadians’ confidence.