It’s been a long time since economic data in Canada showed very much promise. The last 18 months have been defined by a cost of living crisis and a slowing economy.
But a handful of economic indicators give us some hope for 2024.
Inflation has slowed dramatically, and the economy didn’t actually slip into recession.
“We’ve just had one of the biggest declines in inflation that we’ve ever seen without a full-on recession. That’s great news,” said Douglas Porter, chief economist at BMO Capital Markets.
“Now, can we get the rest of the way down to two per cent? Without much pain? That’s still the big question for 2024.”
Last year was dominated by the double whammy of sharply rising interest rates and stubbornly high prices.
2024 should finally see some relief on both fronts. But it will pose new challenges as well.
The Bank of Canada has been trying to get inflation back to that one- to three-per-cent window since price growth kicked off in 2021. Forecasts show CPI should be firmly within that band in the first three months of the year.
Bank of Canada Governor Tiff Macklem spent most of his year-end news conference studiously avoiding anything that could be seen as a declaration of victory.
But he certainly came close with his financial lingo.
“The excess demand that drove prices higher over the past two years is now gone, as higher interest rates and tighter global financial conditions have helped the economy rebalance,” he said on Dec. 15.
But as one problem fades, another becomes more vivid.
The Canadian economy slowed throughout the year as higher interest rates bit into households and businesses.
Canada’s economy in 2024: 4 things to watch
High interest rates, inflation and a slowing economy hit Canadian wallets hard in 2023. CBC’s Peter Armstrong breaks down the financial outlook for 2024 and why there’s still a lot of uncertainty ahead.
For months, the economy has stagnated. It hasn’t grown at all in two quarters. Heading into 2024, the concern shifts from inflation to the potential for a recession.
“With the cost of living still increasing too quickly, and with growth subdued, the next two to three quarters will be difficult for many,” said Macklem.
What will happen with the GDP?
Canada’s economy was bolstered by historic population growth last year. But when you adjust economic growth on a per capita basis, the anemic GDP numbers look even worse.
“Canadian GDP has already declined for five consecutive quarters on a per-capita basis with Q4 likely to stretch that run to 6,” wrote RBC economists Nathan Janzen and Claire Fan.
Meantime, the economy still hasn’t absorbed the full impact of all those rate hikes. The Bank of Canada says that usually takes about 18 months.
The central bank’s first hike came in March of 2022. That was 21 months ago. Economists such as Royce Mendes, managing director and head of macro strategy at Desjardins Capital, say more pain is coming.
“There’s a wall of mortgage renewals that this economy is about to hit. and to get going into 2025, it’s only going to get worse,” he told CBC News.
Mortgage rates to fall?
The Canada Mortgage and Housing Corporation says only about 300,000 homeowners have renewed their mortgages at these new higher rates.
Over the next two years, another 2.2 million Canadian households will be hit with significantly higher rates.
Mendes says that statistic alone should help spur the Bank of Canada on to start cutting interest rates in the first half of this year.
“While the Bank of Canada will probably be lowering rates in 2024, it might still be lowering rates even further and 2025 to help offset some of the pain that will be coming from those mortgage renewals,” said Mendes.
The members differ in their approach. Some say the central bank should start cutting as early as the January meeting. Most recommend the bank get at least one cut under its belt by June.
Bank of Canada Governor Tiff Macklem, seen here at a news conference in 2020, said in his end-of-year-news conference that ‘higher interest rates and tighter global financial conditions have helped the economy rebalance.’ (Nathan Denette/The Canadian Press)
By the end of the year, the council recommends the Bank of Canada get rates down to four per cent.
That should provide some relief to Canadian households and businesses that were clobbered in 2023. Price growth has moderated and will continue to ease down to the vaunted two per cent target, interest rates should come down.
But make no mistake, serious damage has been done. Even the once-resilient Canadian consumer has slowed and become more cautious as the economic pain dragged on the past two years.
“The cracks that are starting to show up in Canadian consumers’ spending behaviour and finances are expected to get gradually wider,” wrote CIBC economists Andrew Grantham and Katherine Judge in a note to clients.
But they say the cracks aren’t expected to turn into a chasm “in part due to the fact that households have already started to make some adjustments and aren’t spending excessively relative to pre-2020 norms.”
That’s not exactly a ringing endorsement; things won’t be great, but they probably won’t explode into something terrible. But after all these years of turmoil and trouble, consumers are used to finding cause of optimism in some gloomy outlooks. And if you squint past the first half of the year, you can just start to make out the picture of an economy getting back on track in the second half of 2024.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
