Construction is not the only solution
Abolishing the GST on new rental housing is a “good idea,” according to Jimmy Jean, which should provide relief to builders struggling with rising labor and material costs. But construction is not the only solution to the housing shortage, he said. We need to find creative solutions because building 500,000 housing units per year, which is what the Canadian Mortgage and Housing Corporation (CMHC) estimates would be needed to solve the housing shortage, “is not going to happen.” “, he believes. “There are efforts to be made in terms of the densification of existing buildings, the conversion of buildings such as shopping centers, and to put a brake on short-term rentals which reduce the number of housing for the population. »
No painful recession
The recession predicted by Desjardins at the start of the year has been delayed, but it should arrive in the coming months. Quebec has just experienced a decline of 1.9% in its GDP in the second quarter, a performance worse than that of the Canadian average of -0.2% for the same period. The deterioration of the Quebec economy has already begun and is expected to continue until the beginning of 2024, according to Jimmy Jean. High interest rates, inflation higher than the Canadian average and the end of government support measures will force households to tighten their belts, and businesses will have difficulty supporting the economy. The recession will not be too painful, but the recovery is likely to be more painful, according to the chief economist at Desjardins.
Unemployment rate at 6%
Desjardins predicts that the general weakness of the Quebec economy will ultimately cause the unemployment rate to rise from its current level of 4.3% to 6% or 6.5% in 2024. Employment is expected to decline over the next few years. months due to the contraction in GDP, until spring 2024. The number of unemployed will increase in Quebec. “It will not be a disaster,” says Jimmy Jean, but certain sectors of activity will suffer more. Job losses will be concentrated throughout the consumer discretionary sector, such as restaurants, arts and entertainment or retail. “These are sectors very exposed to the slowdown in the economy. »
Rate cuts will wait
The Bank of Canada could start reducing its key rate only next spring, according to Desjardins. And the respite will not be enormous, warns Jimmy Jean. “Rates have gone up in an elevator, but they will go down in a staircase,” he illustrates. Until then, the probability of a further rise in interest rates is limited, he believes. The Bank of Canada will perhaps continue to dangle other rate hikes to prevent the markets from getting carried away and the real estate sector from recovering, as happened when it took its first pause last March . This signal should disappear from the central bank’s discourse by the end of the year, the economist believes. Desjardins predicts that the Bank of Canada will begin to reduce its key rate before inflation returns to the 2% target, which will not happen before 2025.
The stock market paradox
The stock markets have had an astonishing year so far, with a rise that defied predictions. The flagship index of the New York Stock Exchange, the S&P 500, which was expected to be around 3,500, has exceeded the 4,000 mark and some see it at more than 5,000. This is not the case for Desjardins. “If we remove the seven largest capitalizations from the index, the stock market is flat, which makes sense in the current context,” estimates Jimmy Jean. Companies linked to the artificial intelligence sector benefit from a certain enthusiasm, but the profits [des autres] have been declining for four consecutive quarters. This cannot continue, according to him. “We continue to think that there will be a fall in the stock market. »