Canada is expected to avoid a recession due to the ongoing downward pressure from higher interest rates, according to Deloitte Canada’s economic outlook report. The report highlights several worrisome trends, including sticky inflation, rising business insolvencies, and increasing mortgage delinquencies. Despite these concerns, Canada appears likely to begin recovering from its current slump in the second half of this year.

The Bank of Canada raised the country’s key interest rate from near zero in March 2022 to the current five percent, which has cooled significantly since then. Deloitte predicts that the central bank will start cutting interest rates in June, with most economists expecting cuts to begin in either June or July. However, Canada’s economy is likely to remain “stuck in neutral” in 2024, particularly in the first half of the year, with real GDP growth coming in at around one per cent this year before reaching 2.9% in 2025.

Statistics Canada reported that Canada’s GDP rose 0.6% in January, with a preliminary estimate of 0.4% growth in February. The economic recovery is contingent on interest rate cuts, which depend on inflation continuing to moderate. The biggest headwind is the cost of housing, as Canadians continue to renew mortgages at higher rates and higher shelter costs are being felt by renters.

The labour market continues to hold up well, but employment gains will slow sharply in 2024. Household spending will remain modest over the first half of the year, as consumers continue to grapple with the higher cost of living. Deloitte expects next year to be much better as interest rates come down, the economy picks up, and pent-up demand is unleashed.

Source: The Star