A new forecast from Deloitte Canada calls for the pace of interest rate cuts to pick up in 2025, but not enough for many Canadian homeowners to avoid feeling the pinch of upcoming mortgage renewals.
Deloitte Canada released a new economic outlook on Wednesday that calls for overall real gross domestic product (GDP) growth of 1.2 per cent in 2024. That’s slightly higher than the 1.0 per cent growth called for in the consultancy’s previous forecast from April.
Chief economist Dawn Desjardins tells Global News the “stronger than anticipated” start to the year has lifted Deloitte’s forecast for 2024. But in turn, the firm is scaling back expectations in 2025, now calling for 2.6 per cent growth, down from 2.9 per cent previously.
That comes despite expectations for interest rates to drop more rapidly next year than in the remainder of 2024.
The Bank of Canada delivered its first interest rate cut in more than four years earlier this month, dropping its policy rate by a quarter of a percentage point to 4.75 per cent.
Deloitte’s forecast calls for another two rate cuts this year. But the firm expects the pace of cuts to pick up in 2025, bringing the Bank of Canada’s benchmark rate down to 2.75 per cent by year’s end.
Mortgage renewals to sap economic growth
That’s going to benefit Canadians who are renewing their mortgages next year, Desjardins explains, but it won’t be enough for most to avoid the pinch.
The Bank of Canada expects that around half of outstanding mortgages have renewed their terms already in the higher interest rate environment, with another half to go in the coming years.
Desjardins explains those yet to renew are largely the households who benefited the most from rock-bottom interest rates in the COVID-19 pandemic, a period that saw a flurry of housing activity drive prices higher in many Canadian markets.
When these Canadians renegotiate their terms, they’ll typically face much higher payments on their mortgages and be forced to rein in their spending to cope — a phenomenon that will put a damper on economic growth in the year ahead.
“Yes, interest rates are going to go down, but we still have a big hump for these households that are going to be renegotiating,” Desjardins says.
As part of the rate forecast, Deloitte sees inflation returning to the Bank of Canada’s two per cent target by the second quarter of 2025. Fresh data released Tuesday showed inflation ticked up to 2.9 per cent in May, surprising most economists.
Deloitte Canada meanwhile expects that the country will avoid a recession during the current economic downturn. Bank of Canada governor Tiff Macklem echoed those expectations in a speech to the Winnipeg Chamber of Commerce on Monday, saying it looked like the economy was so far on track for the so-called “soft landing.”
The Deloitte forecast calls for a slight uptick in the unemployment rate to an average of 6.3 per cent in the latter half of 2024, up from May’s levels of 6.2 per cent.
But Desjardins says the rise in unemployment likely doesn’t include “massive job cuts.” The “modest” rise in unemployment so far in the correction has largely been driven by a growing population and slowdown in hiring without employers necessarily shedding positions.
“It really is an underpinning of this view that, yeah, it will be this elusive soft landing for Canada’s economy because we’re not going to see the labour market deteriorate significantly,” Desjardins says.
Productivity ‘tide is going to turn,’ Deloitte expects
But while Canada has avoided a series of outright declines in real GDP, the country’s economic engine is nonetheless flashing some warning signs.
Real GDP per capita has declined in six of the last seven quarters, Desjardins notes, as a growing population masks gaps in productivity.
Since 2014, productivity growth has been “essentially flat,” according to Deloitte Canada. At the same time, it’s costing Canadian businesses more money for the same levels of economic output — unit labour costs are up 30 per cent over the past decade, the report says.
Desjardins says this situation has dire implications not only for the economy, but also for Canadian households’ standards of living.
A more productive economy allows businesses to pay their workers more without fuelling inflation, letting Canadians get ahead rather than feeling like they’re falling behind the cost of living.
“Over time, it does really take a toll on people’s standards of living and the amount of how their income grows,” Desjardins says.
Deloitte expects this situation will turn around in the months ahead amid signs in the Bank of Canada’s latest Business Outlook Survey that confidence and investment are set to pick up. The start of construction on electric vehicle battery plants also gives reason for optimism, the report says.
“We think that tide is going to turn, but it will take some time,” Desjardins says.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
