TD Economics on 'muddling' year to date
Canada’s economy is “muddling along,” TD Economics said in a new analysis, as the country navigates fluctuating growth rates and challenges within its domestic landscape.
Despite a slightly better-than-anticipated economic performance in the last quarter of 2023, all domestic demand components did not meet expectations.
Consumer spending has shown signs of improvement in the first quarter of 2024, driven by an uptick in auto sales.
But given the expected population growth rate of +3% this quarter, consumer spending per capita is “still projected to underperform on a per capita basis,” extending the downward trend that started with the Bank of Canada’s (BoC) interest rate hikes in 2022.
“That is akin to the weakness seen in past recessions and is likely why Canadians feel little consolation when hearing about a ‘soft landing,’” TD said in its quarterly economic forecast.
Unlike the US, Canada’s employment market is expected to experience net job losses in the latter half of the year, according to the analysis. Coupled with growth in the labour force, the shift would likely elevate the unemployment rate to 6.7% by year-end.
Still, this is minor change by historical standards and allow for a more balanced job market that would “take more steam out of wage growth and assist in cooling inflation.”
As for the topic of inflation, TD said most sectors have seen signs of deceleration, excluding shelter.
CPI inflation stood at only 1.6% in January. However, the BoC’s preferred core measures remained between 3% and 3.5%.
“The BoC has a shelter problem, which it will likely need to look past when it cuts interest rates for the first time mid-year,” TD said.
Financial markets have been eager to see these rate cuts, TD added, with bond yields and mortgage rates declining since autumn. This downward trend has revitalized the Canadian housing market, allowing residential investment to recover from 2023 lows.
Business investment may also be “a little brighter” in 2024, buoyed by capital expenditure plans in the clean energy sector.
“This should help Canada’s growth pick back up to its trend pace by the end of 2025,” TD said.
