Deloitte Canada’s latest Economic Outlook, released on Tuesday, says that the impact of rising interest rates and a slowing U.S. economy will drag down economic growth. (THE CANADIAN PRESS/Sean Kilpatrick)
Canada will enter a deeper recession than previously expected this year as the Bank of Canada’s rapid interest rate hikes take hold and the U.S. economy enters a slowdown, according to a new report from Deloitte Canada.
Deloitte Canada’s latest Economic Outlook, released on Tuesday, says that the impact of rising interest rates and a slowing U.S. economy will drag down economic growth in Canada for three consecutive quarters, resulting in a 0.9 per cent contraction in GDP growth in 2023.
“It’s fair to say that 2023 is shaping to be a rocky year for the Canadian economy,” Deloitte Canada’s National Economic Advisory Leader Trevin Stratton said in an interview with Yahoo Finance Canada.
“While we were previously projecting a recession in the fall of last year, the conditions have worsened a bit and so we’re projecting a slightly longer recession now.”
Deloitte had previously forecast in September that Canada would enter a short-lived recession, with growth stalling in the first quarter of 2023 before returning to positive territory in the second quarter of the year. At the time the forecast was released, the Bank of Canada had hiked its benchmark interest rate by 300 basis points.
But the central bank wasn’t done in its effort to crackdown on inflation, and it raised the benchmark rate an additional 100 basis points, bringing the overnight rate to its current position of 4.25 per cent. Interest payments on household debt in Canada have since soared, increasing by 16.2 per cent on annual basis in the third quarter of the year, the largest increase on record. That, along with slowing economic growth in the U.S., “will hit Canada hard”, the Deloitte report said.
“Households are being battered by the double whammy of high inflation and rising borrowing costs,” the report said.
“Given the increase in interest payments, it’s not terribly surprising that real household spending fell in the third quarter. Unfortunately, interest payments are set to continue to increase over the coming year, squeezing household budgets and leading to yet more declines in consumer spending.”
Consumer spending has already dropped off, but the declines will not be felt equally across all categories. Deloitte said goods sensitive to interest rates, such as household furnishings and appliances, will be hit hardest, and that discretionary spending on services such as communication, recreation, accommodation and food will also decline.
Deloitte now expects real GDP growth to fall in the first and second quarters of the year, with zero growth predicted for the third quarter this year.
Still, the report noted that one of the “wild cards” in the forecast is the Canadian labour market, which has remained tight despite concerns about an economic slowdown. Stratton said while recessions traditionally are associated with significant job losses, the current situation is different as businesses need to balance softening demand against a tight labour market.
“Given these type of conditions, we actually don’t expect employment to decline overall. Employers are somewhat reluctant to let go of workers, for fear of not being able to fill vacant positions once the economy begins to recover next year,” Stratton said.
“That’s not to say there’s good news across the board. Job losses are expected in certain sectors… including in construction, wholesale and retail trade, transportations, the arts, amongst others. But in spite of those losses, we are forecasting that the current labour market is providing support for the economy and preventing the downturn from being worse.”
While Stratton noted that the forecast “may sound dire,” the recession will be relatively mild compared to the Great Recession in 2008 and the pandemic-induced slowdown in 2020.
“We are expecting inflation to decelerate in response to the contraction of the economy, and this is going to allow the Bank of Canada to reducing interest rates before the end of the year,” Stratton said. Deloitte expects the Bank of Canada will cut rates throughout 2024, which will allow for a modest economic recovery.
“But we’re going to see significant economic headwinds in the next six to nine months, and this is going to be challenging for many Canadians.”
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
