Canadian economy to get 'back on its feet' next year, Deloitte Canada says | Canada News Media
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Canadian economy to get ‘back on its feet’ next year, Deloitte Canada says

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Canada’s near-term economic struggles will ease next year when growth returns and the Bank of Canada begins cutting its key lending rate, a new forecast from Deloitte Canada said.

A better-than-expected U.S. outlook and continued population growth here will offset some of the downward pressure from high household debt, soaring interest payments and stubbornly persistent inflation, the company said in its latest economic outlook report, released Thursday.

“We do have an economy getting back on its feet in the first half of next year,” said Dawn Desjardins, chief economist at Deloitte Canada, who co-authored the report.

“The recovery will pick up steam in the second half of 2024 because it’s during the time we anticipate the Bank of Canada will be able to pivot from having high interest rates we’re living with today,” she said.

The report estimates GDP will rise 1% this year and 0.9% next year. Deloitte Canada had earlier predicted GDP would contract 0.9% in 2023.

The next two quarters for the Canadian economy, however, are going to be tough, Desjardins said.

“Canada’s economy has entered a rough patch and the growth is likely to be negligible,” she said. “In fact, we have a few negative quarters in the forecast.”

The slowdown results from the months-long crackdown on high inflation by the Bank of Canada, pushing household debt and interest payments higher, which the Deloitte economist expects will continue in the near term.

Desjardins said a third of Canadian households have a mortgage, adding that an increasing number of them are moving to refinance their property as they struggle to keep up with monthly mortgage payments — a trend expected to continue going forward.

“We do think the housing market will continue to be relatively sluggish [in the near term],” Desjardins said, which would affect other sectors as well.

“When that happens, people are not buying durable goods like refrigerators, stoves and washing machines they would normally purchase when they buy a new home.”

Despite the affordability and housing crises, Deloitte Canada said strengthening U.S. trade and population growth in Canada appear to be helping the country avoid a deeper recession.

Canada’s population is set to jump 2.7% this year, the only other time the country came close to that type of population surge was back in 1971 when it rose 2.2%.

Economists suggest population growth would outpace job gains in the coming months, with the unemployment rate expected to hit 5.9% early next year. A pullback in hiring would drive unemployment and, in turn, slow down consumer spending.

Canada’s record-high population surge also pushed Deloitte to recalibrate its expectations for consumer spending. The report suggests real consumption on a per capita basis dropped 1.5% over the last year, more in line with falling real wages and high interest rates.

“We have finally seen evidence that consumers are taking a step back,” Desjardins said. “The bank’s rate increases are stressing some budgets.”

The report suggests consumer spending this year will grow by 2% but slow to a pace of 1.2% in 2024.

Deloitte Canada estimates the overnight interest rate would fall to a neutral level of 3% by mid-2025.

For the business sector, the report says the investment outlook remains muted in the near term as cost pressures and economic uncertainties hamper confidence among Canadians.

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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

The Canadian Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

The Canadian Press. All rights reserved.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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