“Against this backdrop, we remain cautious about the near-term outlook,” the corporate said in its report. “However, based on its current trajectory, it appears likely that Canada will avoid a recession and even begin to recover from its current slump in the second half of this year.”
Are inflation and recessions related?
To combat soaring inflation, the Bank of Canada (BoC) raised the country’s key rate of interest in several steps in March 2022 from almost zero to the present 5%. Inflation has cooled significantly since then, and Deloitte says the central bank is prepared to begin cutting rates in June. Most economists expect the cuts to start in either June or July.
Despite these positive signs, Canada’s economy is predicted to “remain in neutral” in 2024, Deloitte said, particularly in the primary half of the yr, with real gross domestic product (GDP) having hovered around one per cent earlier this yr, reaching 2.9% in 2025 .
The Impact of GDP on a Recession
Assumptions underlying Deloitte’s forecasts include robust US GDP growth, continued easing of inflation pressures, BofC cuts and a gradual flow of newcomers to the country supporting demand.
Statistics Canada reported on Thursday, March 28, 2024 that Canada’s GDP rose 0.6% in January, with a preliminary estimate calling for 0.4% growth in February. The economic recovery depends upon rate of interest cuts, the report says, which in turn depends upon further moderation in inflation.
“The good news is that measures to cool inflation have made significant progress,” the report said. “Still, the factors keeping inflation high are unlikely to reverse in the near future.”
Will house prices and unemployment fall in 2024?
The biggest headwind is housing costs, Deloitte said, as Canadians proceed to renew their mortgages at higher rates of interest. Tenants are also feeling the results of upper accommodation costs.
“In addition, wage pressures continue to be well above inflation without a corresponding increase in productivity, driving up unit labor costs for companies and making it difficult to contain inflation,” the report said. The labor market continues to carry up remarkably well, Deloitte said, but predicts job growth will slow sharply in 2024.
