Is Canada headed for a recession? Economists say we may already be in one, but things could start looking up partway through 2024.
BNNBloomberg.ca spoke with economists who said they are expecting a downturn in early 2024 followed by a rebound later in the year if the Bank of Canada starts to cut interest rates.
Read economists’ predictions about what lies ahead for Canada’s economy below.
RECESSION OUTLOOK
Many economists were calling for a recession to hit in 2023, but economic data has been surprisingly resilient in the face of a steep interest rate-hiking campaign from the Bank of Canada aimed at reining in inflation.
RBC economist Carrie Freestone told BNNBloomberg.ca that she believes Canada’s economy is already in a recession, and she expects data set to be released in the coming months will reflect that.
However, she doesn’t believe the recessionary period will extend far into 2024.
“Our call is for real GDP to decline by about half of a per cent on a quarter-over-quarter annualized basis. By definition, two-quarters of negative growth will mark a recession,” Freestone said in an interview.
She also pointed to unemployment numbers, which have been rising at levels commonly associated with recessions.
In spite of those signs, she said RBC expects the recession “will be contained within the back half of 2023” and not drag out into 2024, with a rebound to come slowly over the course of the year.
James Orlando, senior economist at TD Economics, said recessionary risks are elevated for the year ahead, as the economy has little room to handle potential shocks due to higher interest rates, such as a possible spike in oil prices.
“Right now, we don’t have any of those catalysts in the forecast, but it’s not like they couldn’t pop up,” he said.
CIBC deputy chief economist Benjamin Tal agreed with Freestone that Canada is already in a recession on a per capita basis.
He noted that per capita GDP and consumption are down, and argued that large increases in the population have “elevated GPD growth” and therefore don’t reflect the entire picture.
Looking at 2024, he predicted a “tale of two halves” for economic performance.
“The first half will be mediocre at best, possibly a recessionary period,” he said. “The second half will be much better, that’s when we expect the interest rates to start going down.”
RATE CUT OUTLOOK
Freestone said she, too, expects 2024 will be a “split year,” with economic weakness likely to persist until the Bank of Canada lowers borrowing costs, potentially midway through the year.
Until then, she said Canadians will likely be squeezed financially as they face higher debt servicing costs, higher-rate mortgage renewals and still-elevated inflation in the price of essentials such as food.
“We’re still expecting consumers will be feeling the pinch, at least through the beginning of next year,” she said.
She expects the central bank will start cutting its trendsetting rate – currently set at a two-decade high of five per cent – near the end of the second quarter, with more cuts to come in the third and fourth quarters. It’s possible that cuts could even begin in April, she said.
RBC Economics is projecting Canada’s overnight lending rate will fall one per cent over the course of 2024, according to a December report.
Economists surveyed by Bloomberg are making the same call.
Median estimates project the Bank of Canada’s benchmark interest rate will fall to 4.75 per cent in the second quarter, then to 4.25 per cent in the third quarter before reaching four per cent in the fourth quarter.
Orlando said he expects similar weakness next year with “below trend economic growth through 2024.”
Lower consumer spending will likely slow the economy over the next 12 months, he said, but that trend could start to reverse once the Bank of Canada cuts interest rates – something he predicted could happen as early as April.
“That could start spurring the hesitant consumers to start spending again,” Orlando said of potential rate cuts.
“The first half of 2024 is expected to be much weaker than the second half, where we actually start getting the economic recovery that we’re hoping for.”
Tal predicted interest rates will go down by about 150 basis points this year, potentially starting in May or June, with further cuts to come in 2025.
POPULATION GROWTH
The only factor keeping Canada’s economy in positive growth territory is robust population growth from immigration, according to Orlando, who pointed out that GDP per capita is “incredibly weak right now.”
“With every new person coming into Canada, that’s a new consumer. That raises the floor for how low the Canadian economy can go when it comes to the probability of a recession,” he said.
Freestone said population growth “insulates demand from a more severe erosion than we’ve been witnessing,” and highlighted that real GDP per capita has been declining for five consecutive quarters.
INFLATION
As for inflation, which was at 3.1 per cent as of November, Orlando said he thinks the consumer price index (CPI) will move closer to the Bank of Canada’s two per cent target in 2024.
“We think that the headline index, that includes things like food and energy, will break below three per cent quite soon,” he said.
However, he cautioned that core inflation excluding food and energy prices, which has been “has been much more sticky,” may take longer to come down.
“It’s been harder to tame, so that should be getting in around two and a half percent by the second half of 2024,” he said.
Freestone also expects inflation will slow this year.
“We’re expecting that inflation will head towards the middle end of the target range towards the middle of next year,” she said. “We have headline inflation at 2.2 per cent year-over-year by Q2, and down to 1.6 per cent by Q3.”
Supply chains will continue to impact inflation in 2024, Tal contended, though this year they may help to tame price growth.
“It’s very important to not underestimate the impact of the supply chain on disinflationary forces,” he said. “Supply chains were the major inflationary force and now the opposite is the case.”
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
