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.
With businesses also pulling back, it expects growth to slow to 1.1 per cent this year from 3.8 per cent in 2022, and then hit its trough at 0.5 per cent in 2024.
“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.”
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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BMO Economics
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.
While housing markets across Canada are soft, Calgary is up more than 10 per cent year over year, said Porter. Calgary dipped below Windsor prices at the peak of the pandemic housing boom, but has since regained ground. Even with the recent slump in oil prices “the balance still favours Calgary,” he said.
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.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
