Deloitte signage is pictured in the financial district in Toronto, Friday, Sept. 8, 2023. THE CANADIAN PRESS/Andrew Lahodynskyj


January 05, 2024

Toronto - Deloitte Canada's latest forecast anticipates a return to economic growth for Canada in the second half of 2024, accompanied by potential interest rate cuts in the spring.

The economic outlook suggests a period of stagnant growth in the initial half of the year as the impact of higher interest rates continues to unfold. While a technical recession might occur, with two quarters or more of negative GDP growth, Deloitte Canada Chief Economist, Dawn Desjardins, believes it's unlikely to witness a severe decline or significant labor market upheaval akin to a typical recession. 

She emphasizes a substantial recovery in the forecast, expecting momentum to improve in the economy and job market during the latter part of 2024 as confidence stages a recovery.

The Canadian economy contracted by 1.1% on an annualized basis in the third quarter of 2023, with flat growth for a third consecutive month in October. Deloitte notes that inflation remains uncomfortably high at 3.1% as of November, prompting the Bank of Canada to maintain its key interest rate target at five percent in December after a series of rate hikes. The report suggests that inflationary pressures, coupled with a housing shortage and rising population, contribute to robust growth in shelter costs.

Deloitte anticipates a shift in the central bank's stance, projecting interest rate cuts once a clear path to the two percent inflation target is evident, likely by spring. Desjardins emphasizes that returning interest rates to pre-pandemic lows may not be ideal, advocating for a level that facilitates economic growth without exerting excessive pressure on inflation, suggesting a target closer to three percent.

While the report predicts soft job growth in the near term, it foresees robust wage gains as workers aim to catch up with inflation. However, wage gains are expected to slow toward the end of 2024, while job growth accelerates. Consumer spending is expected to remain subdued in the first half of 2024, gaining momentum heading into 2025, influenced by elevated debt-to-income levels.

The report identifies the labor market as a crucial variable going forward, particularly in provinces like Ontario and British Columbia with high debt-to-income levels due to housing markets. These provinces, along with Quebec, have the lowest real GDP forecasts for 2024 in the Deloitte report at 0.2 percent.

Despite ongoing economic slowdowns, Deloitte notes a decline in real non-residential business investment in the third quarter of 2023, with expectations of continued weakness in the near term. Businesses, especially in oil and gas and pipelines, express pessimism about slowing demand and sales, leading to potential reductions in hiring and investment in machinery and equipment. However, Deloitte highlights BHP's additional spending on its Jansen potash project in Saskatchewan as a positive factor offsetting the decline in pipeline investment.

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