Canada is on the brink of a recession, Deloitte predicts – Financial Post Achi-News

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Central bankers and economists have been talking about the elusive “soft landing” for a while, but a report out today suggests it might actually be achievable.

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That’s the call of Deloitte Canada’s spring economic forecast.

“Despite the challenge of high debt loads in a high interest rate environment, the Canadian economy looks set to achieve the somewhat elusive soft landing, one where it avoids recession while inflation returns to’ the target,” said the report.

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The reasons behind the forecasts of chief economist Dawn Desjardins and her team include the strong economy to the south of us, cooling inflation, interest rate cuts by the Bank of Canada expected to start in June and a steady flow of new entrants to support domestic demand. .

On Thursday, Statistics Canada said the Canadian economy showed stronger-than-expected growth in the first two months of this year.

Real gross domestic product (GDP) grew 0.6 percent in January, beating analysts’ expectations of 0.4 percent. The agency also expects an increase of 0.4 percent in GDP during February.

“Overall, the economic slump we’ve found ourselves in for much of the past year appears to be slowly coming to an end – and we can look forward to better economic conditions by the second half of 2024,” he said. Deloitte.

We still have to get through the first half, remember.

“Worrying trends” continue as consumers continue to struggle with persistent inflation and higher interest rates, Deloitte said. According to Statistics Canada, at the end of 2023 debt payments were swallowing 15 per cent of household income after mortgage rates almost doubled from the start of 2022.

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Equifax Canada also reports an increase in mortgage and credit defaults, with mortgage delinquency rates rising 135 percent in Ontario and 62 percent in British Columbia.

These pressures will continue as more homeowners renew their mortgages at higher rates, Deloitte said.

Businesses are also feeling the strain. Insolvencies increased by almost 130 per cent in January compared to the previous year and investment intentions have slowed sharply.

“Against this background, we remain cautious about the near-term outlook. But based on its current trajectory, Canada appears likely to avoid a recession and even appears poised to begin recovering from its current slump in the second half of this year,” the report said.

However, not one region managed to avoid recession. Newfoundland and Labrador was the only Canadian province whose economy shrank last year, with GDP dipping 0.5 percent into the red. But Deloitte says the outlook is improving this year and next.

The resumption of production at the Terra Nova oil field in late 2023 and the expected return of the SeaRose floating vessel in the third quarter of this year will boost the province’s oil output and the nascent green hydrogen industry should also support growth. Deloitte predicts that this province’s GDP will grow by 1.2 percent this year and 2.3 percent next year.

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Prince Edward Island is the leader on Deloitte’s growth forecast chart, and its GDP is estimated to grow by 2.1 per cent in 2024, by far the highest of all the provinces.

The steady flow of immigrants to PEI is expected to ease labor shortages and lower interest rates later this year should support growth in the island’s tourism and construction industries, setting the economy to grow 2.8 percent in 2025.

Alberta topped growth last year at 2.1 percent and its economy is still doing well, Deloitte said. But there is a weakness in terms of investment as the construction of the extension to the Traws Mynydd pipelines is finished. The province is one of the few in Canada that Statistics Canada predicts will see a decrease in investment spending this year.

Meanwhile, Saskatchewan is a rising star with the potash industry attracting investment to the province. Combined with population gains and lower household debts, the economy is expected to grow by 1.4 per cent this year and 3.1 per cent next. However, Deloitte warns that Saskatchewan’s economy is sensitive to commodity price volatility and weaker prices for potash, uranium and oil and the potential for another hot, dry growing season are risks.

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With the second most indebted households in Canada next to British Columbia, Ontario has felt the full force of interest rate increases and the outlook for 2024 looks weak, Deloitte said. But new investment in the electric vehicle battery industry should help growth accelerate to 3 percent by next year.

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The Canadian economy took a page from the US handbook to start the year and delivered growth that beat expectations.

Real gross domestic product increased 0.6 per cent in January, Statistics Canada reported Thursday, beating analysts’ expectations of 0.4 per cent. The agency also expects an increase of 0.4 percent in GDP during February.

“To put that two-month growth spurt into perspective, the combined one percent increase is as much as the economy grew in the entire 12 months of 2023,” Bank of Montreal chief economist Douglas Porter said in a note.

So where does this leave the Bank of Canada? Bloomberg says the numbers put GDP on track for an annual increase of 3.5 percent in the first quarter, well above the central bank’s forecast of 0.5 percent.

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That could cause some concern in terms of fighting inflation, but many economists still believe that the Bank will make its first rate cut in June.

Porter says “important releases” such as the Bank’s own Business Outlook Survey today and then February’s trade and jobs numbers later this week should help clarify whether the growth spurt was “just a seasonal illusion.”

“At this point, we’re sticking to our call for four rate cuts, starting at the June meeting,” Porter said. “But suffice it to say, if next week’s data echoes the robust GDP results, the main message in the April 10 and MPR decision may well be “what’s the rush?”

• The Bank of Canada releases its Business Outlook Survey and Canadian Survey of Consumer Expectations
• Real estate boards across the country are reporting home sales for March this week. Calgary is expected to start reporting today, followed by boards for Vancouver and Toronto by midweek.
• Today’s Data: US ISM manufacturing and construction spending

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Today’s Posthaste was written by Pamela Heaven with additional reporting from staff at the Financial Post, The Canadian Press and Bloomberg.

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