‘Recession risks are higher north of the border, with a bumpier landing in store’
With all this talk of Goldilocks lately, you might think the economy is out of the woods.
Not quite yet.
The world’s central banks appear to be ending their particularly aggressive interest-rate hiking cycle and there’s a new optimism in the air. The global economy, especially the United States, stormed past expectations this year, with U.S. growth hitting 2.4 per cent, up from 1.9 per cent last year.
But until those central banks actually start cutting, higher interest rates are still around and promise more pain to come — especially for Canada, say economists.
While the U.S. might get off with a soft landing, Canada, with its high household debt and dependence on the housing market, likely won’t be so lucky.
“Recession risks are higher north of the border, with a bumpier landing in store,” said Toronto Dominion economists led by Beata Caranci.
Canada’s growth will hit a low point in the first half of next year as the drag of higher borrowing costs continue to pull on the economy.
“Cushy soft is not how we would describe Canada’s outlook, which is clearly bumpier due to a more exposed consumer,” said Bank of Montreal’s chief economist Douglas Porter.
“Famously strong population growth of now nearly 3 per cent is papering over an even rockier performance on the ground, while also pressuring shelter costs and pushing up the jobless rate.”
Consumer belt tightening is expected to reach a peak in the first half of the new year, slowing spending to below 1 per cent, said TD.
“This leaves a very narrow margin for error and recession risks are elevated,” said TD.
Other economists think the Canadian economy is unlikely to grow at all. Capital Economics has lowered its growth forecast for 2024 from 0.5 per cent to zero. It expects GDP will contract by 0.2 per cent in the fourth quarter and 1 per cent in the first quarter of 2024.
The Achilles heal of Canada’s economy, the housing market, has weakened more than economists expected, and Capital predicts prices will fall 7 per cent from their August peak.
“With affordability so stretched, there is a clear risk of an even larger fall,” said Capital Economic’s Stephen Brown.
“In that scenario, the modest recession that we forecast could morph into a deeper downturn.”
Economists at Desjardins expect a “short and shallow” recession in the first half of 2024 with consumption, business and housing investment all contracting, pushing the unemployment rate higher.
Bank of Montreal sees GDP gains slowing to 0.5 per cent in 2024, “with the economy dancing around the edge of recession in the first half of the year.”
The upside of stalling growth is that it will (eventually) trigger Bank of Canada interest rate cuts.
Most economists see this happening in the spring, but the month and the amount varies.
Predictions on the starting date range from as early as March to June or later and forecasts on where the Bank’s rate will be by the end of 2024 range from 3 per cent to 4.25 per cent.
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Lots going on in this chart from BMO chief economist Douglas Porter. Looking at the ratio of home prices in Calgary versus Windsor gives a read on the resource sector versus manufacturing.
The red line tracks oil prices which in the past have been a good indicator of the fate of the two housing markets, he said.
It also shows the western city’s recent country-beating strength in real estate.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
The Canadian Press. All rights reserved.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
The Canadian Press. All rights reserved.
HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.
Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.
The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.
Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”
Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.
Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.
This report by The Canadian Press was first published Sept. 10, 2024.
The Canadian Press. All rights reserved.
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