BoC’s Macklem says Canadian economy appears to be on track for soft landing

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in the base metal sector, while U.S. stock markets were also higher.

The S&P/TSX composite index was 143.00 points at 24,048.88.

In New York, the Dow Jones industrial average was up 174.22 points at 42,088.97. The S&P 500 index was up 10.23 points at 5,732.49, while the Nasdaq composite was up 30.02 points at 18,112.23.

The Canadian dollar traded for 74.23 cents US compared with 74.28 cents US on Wednesday.

The November crude oil contract was down US$1.68 at US$68.01 per barrel and the November natural gas contract was down six cents at US$2.75 per mmBTU.

The December gold contract was up US$4.40 at US$2,689.10 an ounce and the December copper contract was up 13 cents at US$4.62 a pound.

This report by The Canadian Press was first published Sept. 26, 2024.

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Deloitte Canada expects economic growth to pick up next year as it forecasts the Bank of Canada to cut its key interest rate below three per cent by mid-2025.

In the company’s fall economic outlook released Thursday, it forecasts the central bank’s interest rate will fall to 3.75 per cent by the end of this year and a neutral rate of 2.75 per cent by mid next year.

Meanwhile, it expects the economy to grow moderately as softer labour market conditions persist, especially as many homeowners have yet to face higher rates when they refinance their loans.

“We do think that we’re going to be in for a decent year next year,” said Dawn Desjardins, chief economist at Deloitte Canada.

It appears Canada will successfully skirt a recession despite the impact of higher borrowing costs on the economy, said Desjardins.

“It’s hard to argue that the economy is just skating through this period of higher interest rates. But having said that, the overall numbers themselves continue to show the economy is expanding,” she said.

“Yes, the labour market has softened, but I don’t think we’re in any kind of crisis in the labour market at this time.”

The Bank of Canada has cut its benchmark rate three times so far this year as inflation has eased, and signalled more cuts are coming.

Inflation in Canada hit the central bank’s two per cent target in August, falling from 2.5 in July to reach its lowest level since February 2021.

However, higher rates have weighed on economic growth and the labour market.

Deloitte’s predicted 2.75 per cent neutral rate — the rate at which the central bank’s monetary policy is neither stimulating nor holding back the economy — is higher than where interest rates were hovering in the years before the COVID-19 pandemic.

Desjardins said the forecast aligns with the central bank’s own projections. There are a number of factors on the horizon that may pose increased risk to inflation, she said, such as climate change.

“These are costly things that we’re going to have to deal with and will be embedded in prices. So that’s sort of how we get to this 2.75 (per cent).”

The report says the global backdrop continues to be challenging, with no clear ends to the wars in Ukraine and the Middle East, growing trade frictions and an uncertain impact of the U.S. election on policy.

Consumers and businesses alike are still facing a lot of uncertainty, said Desjardins.

The heightened uncertainty, including from the looming U.S. election in November, makes businesses reticent to invest, she said, but added more clarity should come in the new year.

“We’ll see inflation coming down and interest rates coming down. So those are two powerful factors that will support an improvement in confidence both from the consumer side as well as the business side as we go through next year,” she said.

In its report, Deloitte said it’s still optimistic about Canada’s economy next year.

“Lower rates will ease the burden on the highly indebted household sector sufficiently to support a pickup in spending and a housing market recovery,” it said in the report. “After two years of subpar growth, we look for the economy to hit its stride in 2025.”

Deloitte said despite the easing of overall inflation, shelter prices — especially rent — “remain too high for comfort.” However, it also said interest rate cuts are expected to “rejuvenate construction activity,” with home-building activity set to rise throughout 2025.

While rate cuts should help stimulate the housing market, Deloitte said it expects the recovery to be modest amid poor affordability.

Desjardins said without a significant boost to housing supply, the affordability issue is unlikely to subside.

“We know that Canada has a pretty significant supply deficit on the housing side,” she said.

“The housing cannot be created overnight.”

However, she also doesn’t see house prices significantly increasing.

“I think we’re going to see some easing up on demand from new Canadians as we move forward. So that might give a little bit of a relief,” she said.

This report by The Canadian Press was first published Sept. 26, 2024.

TORONTO – Canada’s main stock index edged lower on Wednesday, weighed down by the energy sector as the price of oil fell, while U.S. stock markets were mixed, with the S&P 500 and Dow slipping from the records set the day before.

The S&P/TSX composite index closed down 46.34 points at 23,905.88.

In New York, the Dow Jones industrial average was down 293.47 points at 41,914.75. The S&P 500 index was down 10.67 points at 5,722.26, while the Nasdaq composite was up 7.68 points at 18,082.20.

It was a quieter day as investors anticipated important economic data to come later in the week, said Jennifer Tozser, senior wealth adviser and portfolio manager with Tozser Wealth Management at National Bank Financial Wealth Management.

The next report on U.S. GDP is scheduled for release Thursday, while Friday will bring the Personal Consumption Expenditures index.

Investors will be looking for hints in the data on what the U.S. Federal Reserve might do next, Tozser said.

“Now everybody’s just sitting there looking to see if tomorrow’s economic data suggests not only how many more cuts are to come, but how fast and what magnitude.”

Last week, the U.S. Federal Reserve cut its key interest rate by half a percentage point, the first cut since its hiking campaign to fight inflation.

Meanwhile, the Bank of Canada has already cut its key rate three times this year, as the Canadian economy and labour market have softened faster than in the U.S.

Central banks in both Canada and the U.S. are set to keep cutting interest rates, but Tozser said the path is less certain south of the border.

Lower rates and the promise of more cuts on the horizon are helping boost the recent sectoral rotation in markets, said Tozser, with a broader group of companies seeing gains as attention on the Magnificent Seven stocks eases.

“We’re seeing strength in the overall economy, not just those few leaders that have been able to swim against the tide,” she said.

Large tech companies like Nvidia have led gains this year on the back of optimism over artificial intelligence.

The Canadian dollar traded for 74.28 cents US compared with 74.25 cents US on Tuesday.

The November crude oil contract was down US$1.87 at US$69.69 per barrel and the November natural gas contract was up three cents at US$2.82 per mmBTU.

The December gold contract was up US$7.70 at US$2,684.70 an ounceand the December copper contract was down less than a penny at $4.49 a pound.

This report by The Canadian Press was first published Sept. 25, 2024.

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