Canada’s economy will return to growth in the second half of 2024 with interest rate cuts expected as early as late spring, Deloitte Canada says.
The financial firm’s latest economic outlook report forecasts sluggish growth during the first half of the year due to the impact of higher interest rates but also predicts momentum in the economy and the job market will improve in the second half of 2024.
The Bank of Canada held its interest rate steady at five percent last month and has yet to commit to lowering the interest rate in the near future. While inflation remains “uncomfortably high” at 3.1 percent, it’s unlikely the central bank will increase rates further, the report says.
While the second half of 2024 is looking rosier, Deloitte Canada chief economist Dawn Desjardins said many Canadians will feel a “bigger bite on their incomes” in the first few months of 2024 as more households have to renew their mortgages.
With rent also rising 6.5 percent as of last August from the same month in 2022, it’s no easier for those without mortgages, she said.
“From a household’s perspective, you’re still seeing these costs which means you probably have less money to be purchasing other goods and services,” she told BNN Bloomberg in a recent video interview.
Ms. Desjardins also said Canadians shouldn’t expect interest rates to return to their pre-pandemic lows.
“We think the economy will slow sufficiently that it will alleviate some of those price pressures,” she said. “It doesn’t mean we get to 2 percent next year but it does mean we’ll see change in the direction of inflation, that it will be headed toward that 2 percent target. We think that as that happens, it opens the door to the Bank of Canada changing positions. Moving from tightening mode to gradually lowering interest rates,” she said.
The governor of the Bank of Canada has also said he expects the country’s inflation rate to be close to the targeted 2 percent late this year.
“The economy is no longer overheated, and that is relieving inflationary pressures,” he said. “The 2 percent inflation target is now in sight. And while we’re not there yet, the conditions increasingly appear to be in place to get us there.”
The central bank has raised interest rates 10 times since early 2022, although it has remained at 5 percent over the past six months.
Mr. Macklem said it was still “too early to consider cutting our policy rate until we see evidence that we are clearly on a path back to 2 percent inflation.”
Ms. Desjardins said there is always a risk that if the “core” inflation numbers remain “very sticky,” the central bank could raise rates again, but added that she thinks it’s unlikely.
“We don’t think they will, because we think the slowing momentum in the economy is going to offset that concern ... but it will probably be a very slow course of action,” she said. “Probably late spring. … we don’t think it will be as quick a cutting machine as it was a hiking machine.”
