TORONTO — The Canadian economy will return to growth in the second half of 2024, with interest rate cuts as early as this spring, according to a new forecast by Deloitte Canada.
The firm’s economic outlook predicts stagnant growth during the first half of the year as the effects of higher interest rates continue to work their way through the system.
Deloitte Canada chief economist Dawn Desjardins said that while this could mean a technical recession — two quarters or more of negative GDP growth — it’s unlikely the Canadian economy will see the deep decline or labour market rout that typically accompany a true recession.
Momentum in the economy and the job market is poised to improve in the second half of 2024 as confidence starts to recover, Desjardins said.
We have a pretty substantive recovery in our forecast
Dawn Desjardins
The Canadian economy shrank in the third quarter of 2023, contracting 1.1 per cent on an annualized basis while growth was flat for a third straight month in October. Statistics Canada’s early estimate for November suggests an increase in real GDP for November of just 0.1 per cent.
The Bank of Canada held its key interest rate target steady at five per cent in December after a heavy-handed hiking campaign to fight inflation.
Deloitte said inflation is still uncomfortably high at 3.1 per cent as of November, but it’s unlikely the central bank will hike rates further. It predicts the central bank will begin cutting rates as soon as the path to its two per cent target is clear, something that it expects will likely be in the spring.
However, Desjardins said Canadians shouldn’t expect or even want interest rates to return to their pre-pandemic lows.
“We’ve gone through periods post-financial crisis, where we have had globally very, very low interest rates. And that sort of became the norm,” she said.
Household spending on goods and services stalled toward the end of 2023, the Deloitte report said, and even though inflationary pressures are easing, shelter costs continue to post strong growth amid a housing shortage and rising population.
“The outlook for consumer spending on housing and goods and services depends on the future path of interest rates and the health of the labour market,” the report said.
The Deloitte report predicts soft job growth in the near term but robust wage gains as workers continue to try and catch up to inflation. However, wage gains will begin to slow toward the end of 2024, while job growth will accelerate, the report said.
Consumer spending will likely remain “muted” through the first half of 2024 before picking up momentum heading into 2025, the report said.
The biggest wild card going forward will be the labour market, she said: “If the labour market is able to hang in, you know, we’ll get through this.”
Households in Ontario and British Columbia have particularly high debt-to-income levels due to their housing markets, Desjardins said.
Those two provinces, alongside Quebec, have the lowest real GDP forecasts for 2024 in the Deloitte report at 0.2 per cent.
As the economy continued to slow, real non-residential business investment dropped in the third quarter of 2023, the Deloitte report said. That weakness is expected to continue in the near term as businesses are more pessimistic about slowing demand and sales, the report notes — some are planning to slow hiring or invest less in machinery and equipment.
That weakness will likely be most evident in oil and gas and pipelines, Deloitte predicted: oil prices are down from recent highs, work is almost done on the LNG Canada terminal, and work is slowing on the Coastal GasLink and Trans Mountain pipeline projects.
However, BHP’s recent approval of an additional $6.4 billion in spending on its Jansen potash project in Saskatchewan will help offset the decline in pipeline investment, Deloitte said.
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.
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.
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OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
The Canadian Press. All rights reserved.
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