Deloitte's outlook suggests Canada may avoid recession, though Newfoundland and Labrador struggles
According to Deloitte Canada's spring economic outlook, Canada might achieve the much-discussed “soft landing” successfully navigating through high debt burdens and an environment of elevated interest rates without spiraling into a recession.
This optimistic forecast is buoyed by factors including a robust US economy, subsiding inflation, anticipated interest rate reductions by the Bank of Canada starting in June, and a steady influx of newcomers bolstering domestic demand.
Statistics Canada's recent data reveals an unexpectedly strong economic performance in the early months of this year, with a 0.6 percent increase in real GDP in January, surpassing the forecasted 0.4 percent. February is also expected to see a 0.4 percent rise in GDP.
Deloitte anticipates an end to the economic downturn experienced over the past year, projecting improved economic conditions by the second half of 2024.
However, the path through the first half remains fraught with challenges, as persistent inflation and higher interest rates continue to exert pressure on consumers and businesses alike.
Consumer debt payments accounted for 15 percent of household incomes by the end of 2023, as mortgage rates nearly doubled since early 2022. Both Ontario and British Columbia have seen significant increases in mortgage delinquency rates.
Business insolvencies spiked by almost 130 percent in January year-over-year, with a noticeable deceleration in investment intentions.
Despite these challenges, Canada's overall economic trajectory suggests a potential avoidance of recession, with recovery expected to commence in the latter half of the year. However, Newfoundland and Labrador have not been as fortunate, experiencing a 0.5 percent contraction in GDP last year.
Nonetheless, the outlook for this province is set to improve, with the resumption of operations at the Terra Nova oil field and the anticipated boost from the green hydrogen industry.
Deloitte's report also highlights regional disparities in economic growth. Prince Edward Island leads in growth projections for 2024, with an expected 2.1 percent increase in GDP, attributed to immigration easing labor shortages and supportive lower interest rates.
Alberta, despite leading growth last year, faces investment challenges, while Saskatchewan's economy is poised for growth, driven by the potash industry and demographic gains.
Ontario, grappling with high debt levels and the impact of interest rate hikes, has a subdued outlook for 2024. However, investments in the electric vehicle battery industry are expected to spur growth in the coming year.
