Budget Watchdog Predicts ‘Tepid’ Growth in Canadian Economy for Remainder of 2024

Parliamentary Budget Officer Yves Giroux waits to appear before the Senate Committee on National Finance, in Ottawa on Oct. 17, 2023. The Canadian Press/Adrian Wyld

The Parliamentary Budget Office (PBO) predicts Canada’s economy will remain weaker for the rest of 2024, with higher interest rates continuing to put a damper on economic growth.

Despite recent rate cuts by the Bank of Canada, which reduced its key interest rate from 5 percent to 4.25 percent from June to September, the PBO said the elevated rates “will continue putting downward pressure on consumer spending and investment.”

Canada’s economy grew more than the PBO had anticipated in the first half of 2024, with real gross domestic product (GDP) growing at 1.9 percent due to higher household and government consumption. The PBO predicts the country’s real GDP growth will be at 1.1 percent as 2024 draws to a close.

“We anticipate that economic growth will moderate over the remainder of the year, as the contribution of government spending tapers off,” the Oct. 17 report said.

The PBO predicts that with the economy having excess supply and inflation returning to the Bank of Canada’s 2 percent target, interest rates will continue to fall until they reach an estimated 2.75 percent in the second quarter of 2025. Real GDP growth is expected to grow to 2.2 percent in 2025, driven by lower borrowing costs that drive up consumer spending, business investments, and exports.

Canada’s unemployment rate rose slightly, reaching 6.7 percent in August 2024 compared to 5.8 percent a year earlier. The PBO said employment gains have “not kept pace with robust population growth” and the unemployment rate is expected to stay higher than 6 percent until the second half of 2026 before falling to 5.6 percent in 2027.

While the budget deficit for the 2023/2024 fiscal year was around $46.8 billion, or 1.6 percent of GDP, this year’s budget deficit is expected to decline slightly to $46.4 billion. The PBO said assuming no new spending policies are introduced, and existing policies proceed as scheduled, the federal deficit will fall to $22.5 billion, or o.6 percent of GDP, by 2029 to 2030 fiscal year.

The federal debt-to-GDP ratio is expected to be 42.2 percent in the 2024/2025 fiscal year, which is expected to decline to 39 percent by 2029/2030, according to the PBO.

The PBO also made projections about the number of non-permanent residents in Canada, which it said is expected to fall from just over 3 million in 2024 to 2.2 million by 2030. In early 2024, the federal government announced it was aiming to shrink temporary residents’ share of Canada’s population, which currently sits at 6.2 percent, to 5 percent over the next three years.