Deloitte's forecast highlights challenges for Canadian homeowners
Deloitte Canada has released a new economic outlook predicting further interest rate cuts in 2025, though many Canadian homeowners are still expected to feel the impact of upcoming mortgage renewals.
The forecast projected overall real GDP growth of 1.2% in 2024, slightly higher than the 1.0% growth predicted in April.
Deloitte Canada chief economist Dawn Desjardins told Global News that the "stronger than anticipated" start to the year has lifted the 2024 forecast. However, expectations for 2025 have been scaled back to 2.6% growth, down from the previous 2.9% projection.
The firm expects two more rate cuts this year, with the pace accelerating in 2025. Deloitte forecasts the Bank of Canada's benchmark rate to drop to 2.75% by the end of next year.
Desjardins noted that more rate cuts will benefit Canadians renewing their mortgages next year, but it may not be enough to offset the sting.
According to the central bank, about half of outstanding mortgages have already renewed their terms in the higher interest rate environment, with the remaining half set to do so in the coming years. Those yet to renew are largely households who benefited from the low interest rates during the COVID-19 pandemic.
“Yes, interest rates are going to go down, but we still have a big hump for these households that are going to be renegotiating,” Desjardins said.
The forecast predicts a slight increase in the unemployment rate to an average of 6.3% in the latter half of 2024, up from 6.2% in May. Desjardins noted that this rise is likely due to population growth and a hiring slowdown rather than large-scale job losses.
“It really is an underpinning of this view that, yeah, it will be this elusive soft landing for Canada's economy because we're not going to see the labour market deteriorate significantly,” Desjardins said.
Real GDP per capita has declined in six of the last seven quarters, with a growing population masking productivity issues. Deloitte reports that productivity growth has been "essentially flat" since 2014, while unit labour costs have increased by 30% over the past decade.
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Desjardins warned that this situation could have serious implications for Canadians' living standards. A more productive economy would allow businesses to pay higher wages without triggering inflation, improving the standard of living.
“Over time, it does really take a toll on people's standards of living and the amount of how their income grows,” said Desjardins.
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