Canada's economy performed better than initially expected in 2023, recording GDP growth of 1.1%, largely due to population expansion. Although unemployment increased slightly in the second half of the year, this mainly reflected an increase in the active labor force rather than a decrease in employment. Last year, the Canadian economy created as many as 430,000 new jobs.
The resilience of the Canadian economy prompted the Bank of Canada to raise its key interest rate by 75 basis points to 5.0%. This has led to uneven growth across sectors, with the interest rate-sensitive housing market slowing but also beginning to show signs of stabilization. Canadian households cut their spending while the global economic slowdown weighed on business investment and exports in the second half of 2023.
Key economic forecasts for 2024:
- Forecast GDP growth: 0.9%
- Estimated inflation rate: 2-3%
- Expected first rate cut: Summer 2024
Despite a slightly lower economic growth projection for 2024, Canada is struggling to avoid recession. A predictable environment is expected, but high interest rates will continue to dampen strong economic activity. The US is expected to outperform other major economies, keeping the Canadian dollar between 72 and 75 cents. Global oil prices are expected to hover between US$70 and US$80 per barrel for WTI and between US$75 and US$85 for Brent crude, with OPEC+ cuts expected to moderate any price falls.
Risks and challenges for 2024
Although no major fluctuations are expected, the economic outlook for 2024 depends on interest rates and inflation. Geopolitical conflicts, persistent inflation due to high demand and a possible decline in demand represent risks that could lead to a mild recession. Canadian households, burdened with high levels of debt and shorter mortgage terms, are particularly sensitive to current interest rates.
Regional differences and economic impacts
The impact of the economic slowdown varies by province and industry, with inflation and interest rate hikes having an impact. Sectors sensitive to high interest rates, such as real estate, continue to bear the brunt of the slowdown. Provinces such as British Columbia, Ontario and Quebec, where inflation is higher and households are more indebted, are seeing declines in discretionary spending.
Commodity-oriented provinces such as Alberta and Saskatchewan are expected to grow above the national average in 2024, becoming less dependent on household consumption. Manitoba, with a well-diversified economy historically less sensitive to cyclical disruptions, can expect a decline in exports due to lower demand in major markets. The Atlantic provinces benefited from strong population growth in 2023, but slower forecasted growth in the US and China in 2024 may weaken regional exports.
Entrepreneurial strategies for coping with challenges:
The economic slowdown and population growth bring challenges and opportunities for the economy. Finding workers is likely to become easier, but challenges remain in sustaining employment due to an aging population. Developing a robust HR strategy is critical to long-term success.
As interest rates remain high and demand declines, entrepreneurs must adapt quickly and focus on maintaining financial health. Implementing technologies to increase productivity and competitiveness allows companies to take advantage of the gains made when the economy stops cooling. This type of approach will be critical in managing the uncertainty of Canada's economic environment in 2024.
Summarised according to The Business Development Bank of Canada by Simon Pribac.
Source: GZS
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Welcome to watch below the insightful conference Lunch & Learn” CSCC 2024 Business Insights: 2024 Canadian Economic and Financial Trends with Robert Kavcic, Director and Senior Economist at BMO Capital Markets.
Source: GZS
