Deloitte predicts that the Bank of Canada won't lower rates until September, with expectations of reducing the overnight rate to 4.25 percent by the end of 2024.
Deloitte Canada's latest economic outlook predicts a strengthening Canadian economy in the latter half of 2024, bolstered by anticipated interest rate cuts from the Bank of Canada starting in September. While acknowledging robust growth in the first half of the year, Deloitte underscores the urgent need to address Canada's lagging productivity.
According to Dawn Desjardins, Deloitte Canada's chief economist, the economy surpassed earlier projections, and recovery momentum is expected to continue through the rest of 2024 as the central bank continues easing measures. Deloitte forecasts that the Bank of Canada will delay further rate cuts until September, followed by gradual reductions aiming to lower the overnight rate to 4.25 percent by the end of the year.
Desjardins emphasizes the Bank's cautious approach, aiming to balance economic stimulation while avoiding inflation risks that could hinder reaching the two percent target. Looking ahead to 2025, Deloitte anticipates a more aggressive rate-cutting stance once inflation stabilizes at the target level, possibly reducing the benchmark rate to 2.75 percent by the end of next year.
Despite unexpected inflation upticks in May, reducing the likelihood of rate cuts in July, the Bank of Canada recently initiated its first rate reduction in over four years, lowering the benchmark to 4.75 percent. Further rate cuts are anticipated if inflation continues to ease, potentially boosting consumer spending and residential investment in the latter half of the year.
Deloitte projects GDP growth at 1.6 percent in Q2, 2.1 percent in Q3, and 2.7 percent in Q4, highlighting challenges such as low consumer confidence, housing affordability issues, and high savings rates that could dampen recovery pace in 2024. However, stronger gains are expected next year as confidence returns and economic conditions stabilize.
Despite positive economic signals and a seemingly smooth economic landing, Deloitte warns about persistent weaknesses in business investment and productivity, which could threaten Canada's long-term economic prospects. Addressing these issues is crucial, given the significant declines in business investment observed last year and ongoing productivity challenges.
Deloitte underscores the urgency of boosting productivity, echoing recent calls from Bank of Canada officials who labeled Canada's productivity growth as critical. They advocate for measures to encourage business investment and streamline regulations, including reducing interprovincial trade barriers, to foster growth and competitiveness.
In conclusion, while Canada's economic recovery appears promising for the remainder of 2024, tackling productivity issues remains paramount to ensure sustained economic health and competitiveness on a global scale.
