CIBC explains outlook for economy
The economic landscape in Canada for the coming year reveals decelerating growth, with each province facing its own challenges, according to a new report.
CIBC’s Economics Provincial Forecast provides an outlook of the economy in each province for the year ahead, with 2024 set to be a case of seeing which provinces look the “least bad” rather than looking out for strong economic growth.
In provinces like Ontario and British Columbia that are heavily reliant on housing markets and are burdened by household debt, growth will be sluggish, according to the report. Meanwhile, Quebec’s growth will be constrained by weaker population growth and recent public sector strikes.
Conversely, the Atlantic provinces, buoyed by robust population growth, are likely to perform comparatively better. Towards year-end, provinces reliant on commodities should benefit from rising prices and global demand, thanks to anticipated interest rate cuts.
While Canada’s GDP forecasts suggest provinces may avoid recession, per capita performance will be lacklustre. CIBC’s momentum indicator suggests a bleak economic landscape, with activity falling below historical trends, especially evident in Quebec’s sharp deceleration.
Factors such as droughts and wildfires dampened Prairie provinces’ economic activity, while BC and Ontario grappled with housing market constraints and supply chain disruptions. Despite recent improvements, 2023’s lows in economic momentum remained less dire than those of the 2008/09 recession.
Impact of rate adjustments
CIBC notes inflation concerns loom large, especially in Quebec, where elevated inflation rates outpace those of other provinces. Reduced immigration exacerbates labour market tightness, driving up wages and prices. Amidst tightening labour markets, Quebec’s investment in machinery and equipment may offer non-inflationary growth opportunities.
Similarly, British Columbia and Ontario face dwindling demand due to exhausted savings and increased business bankruptcies, fuelled by increased mortgage rates. The report notes that although mortgage arrears in BC and Ontario are similar to 2019 levels, regulatory safeguards mitigate risks.
To counter economic headwinds, the Bank of Canada is poised to implement interest rate cuts, beginning with a possible 25-basis-point reduction in June. These cuts aim to stimulate growth, particularly in the face of limited fiscal space for provincial governments, especially in populous provinces like Ontario and British Columbia.
While challenges persist, the economic outlook isn’t entirely bleak, according to the report. The anticipated rebound in housing markets and spending towards the year’s end, coupled with potential improvements in commodity prices, offer glimmers of hope. By 2025, as global demand strengthens, provinces like Alberta may see significant economic growth, further supported by anticipated rate cuts.
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