Deloitte Predicts Canada Will Outlast Recession, See Recovery in Second Half of 2024

According to Deloitte Canada’s economic outlook report, despite the ongoing pressure from higher interest rates, Canada seems poised to avoid a recession.

Deloitte highlighted several concerning trends affecting the economy, such as persistent inflation, increasing business insolvencies, and rising mortgage delinquencies.

“Given this environment, we maintain a cautious outlook for the near term,” stated the firm in its report. “However, based on current trends, Canada is likely to sidestep a recession and potentially begin a recovery in the latter half of the year.”

In response to surging inflation, the Bank of Canada raised the nation’s key interest rate from near zero in March 2022 to the current five percent through a series of hikes.

Since then, inflation has cooled significantly, leading Deloitte to predict interest rate cuts by the central bank starting in June. Most economists anticipate rate reductions beginning in either June or July.

Despite positive indicators, Deloitte expects Canada’s economy to stay “stuck in neutral” in 2024, especially in the first half of the year, with real GDP growth projected around one percent this year before accelerating to 2.9 percent in 2025.

Deloitte’s forecasts are based on assumptions like robust U.S. GDP growth, ongoing softening of inflationary pressures, Bank of Canada rate cuts, and a steady influx of newcomers supporting demand.

Statistics Canada reported a 0.6 percent increase in Canada’s GDP in January, with a preliminary estimate of 0.4 percent growth in February.

The economic recovery hinges on interest rate cuts, contingent on inflation continuing to ease: “The positive news is that efforts to moderate inflation have shown significant progress,” the report emphasized.

Deloitte highlighted housing costs as a major challenge, with Canadians facing higher mortgage rates and increased shelter expenses impacting renters as well.

The labor market remains strong, according to Deloitte, although it predicts slower employment growth in 2024.

Household spending is expected to be restrained in the first half of the year due to the higher cost of living, with a potential improvement in 2025 as interest rates decline and demand rebounds.

Deloitte noted a concerning decline in business investment and expects elevated interest rates to limit recovery in that sector this year.

High rates are dampening economic activity and eroding business confidence, the report stated. “To cope with reduced demand and stricter credit conditions, businesses are delaying investment plans, focusing more on maintenance and repairs than expansion.”

While the U.S. economy has shown resilience under interest rate hikes, Deloitte anticipates the Federal Reserve also initiating rate cuts in the latter part of the year.

The report projects somewhat slower but positive growth for the U.S. economy, with real GDP forecasted at 2.4 percent in 2024 and 1.4 percent in 2025.