The Bank of Canada's policy trajectory will be a deciding factor in the country’s economic performance
The Canadian economy is likely to see a moderate recession, stemming from rising debt service costs due to mortgage renewals, until mid-2024, according to a new analysis by Oxford Economics.
However, the trend is expected to turn around very soon afterwards, with spending momentum to recover as a result.
“We expect a modest recovery in the latter half of 2024 as the Bank of Canada begins to cut interest rates, disinflation continues, and global growth improves,” the study noted.
“Consumers and businesses will gradually regain the willingness and ability to spend in H2 2024, but they will likely remain on edge as interest rates only slowly ease amid ongoing uncertainty.”
With inflation levels veering ever closer to the central bank’s target, the BoC seems poised to initiate an easing cycle, Oxford Economics said.
“Growing slack in the economy alongside weaker global oil and food prices will bring inflation back to the 2% target by late 2024,” the study said. “We think ample evidence of this disinflationary trend will prompt the Bank to start cutting rates by mid-2024, albeit only gradually to avoid a potential course reversal later.”
The Canadian inflation rate stood at an annualized pace of 3.1% in November, according to Statistics Canada.
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 21, 2023
Read more: https://t.co/KPyyXKyiTu#mortgagenews #inflation #economy #mortgage
“Fiscal policy will be caught between a rock and a hard place,” it added. “Barring a more severe economic downturn, the government will refrain from inflation-inducing fiscal stimulus that would undermine monetary policy. Instead, only targeted measures are likely as the moderate recession and fragile recovery play out, especially with a 2025 federal election on the horizon.”
Another major factor that will influence economic dynamics will be an anticipated surge of newcomers this year, which is expected to sustain the ongoing population boom.
“[An] influx of immigrants and temporary residents in 2024 will continue to loosen the labour market, but also further strain housing supply, particularly rentals, and pressure public services like health and social services,” Oxford Economics said. “Canada’s population boom will lift the economy over time, as newcomers fully settle.”
