Canada is not in for a recession this year “but a soft landing.”
That’s the word from Pierre Cléroux, chief economist of the Business Development Bank of Canada, who served up his economic forecast at a Surrey Board of Trade luncheon at Northview Golf Course on Feb. 1.
“Growth is going to be below one per cent, so there’s not much growth especially if you look compared to 2021-22 this is quite modest growth but the economy will continue to grow anyway, especially the second part of 2024,” Cléroux said. “So the economy is going to be flat until interest rates start to decline but in the second part of the year you will see more momentum in the economy and in 2025 we will go back to a more balanced economy. Low inflation, lower interest rate and growth is going to become again, around two per cent.”
Inflation is going down everywhere, he said, but there are still challenges. European countries will still under-perform this year, mostly because of the war in Ukraine, which is increasing the price of energy. “It’s really disrupting supply chains, so Europe is going to have another difficult year in 2024.”
North America, in contrast, “is going to be the best region in the world. This is where we see the most growth in the world right now, it’s in North America.”
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The U.S. economy is doing better than Canada’s, he noted. “What is different is the growth in the U.S. is much stronger than in Canada.” The reason, Cléroux said, is the structure of mortgages “is quite different in the U.S.” Eighty per cent of Americans have 25-year mortgages. “In Canada it’s the opposite – 80 per cent of Canadians have a mortgage for less than five years. So when you increase the interest rate, you don’t have the same impact on people. If people have a mortgage for 25 years, well they won’t see the difference at the end of the month even if interest rates are increasing. They might have a car loan and something else, but in Canada the hit is more because people renew their mortgage.”
Two more reasons the U.S. is performing “much better” than Canada, he said, is because the U.S. government is spending a lot of money, “which is helping the economy,” and consumers south of the border have also been spending a lot of money. “Consumption in the U.S. is very strong.”
Cléroux expects the Bank of Canada will reduce interest rates in June, after increasing it for the past 18 months. And when interest rates decline, he said, consumption will increase “because there’s money in the system.”
“Our forecast for the B.C. economy is growth around 0.5 per cent,” he said. “So it’s modest growth, but not a recession. The economy is just slowing down. Like for Canada when interest rates start to decline in June, you will see more pick up in the economy. The first sector that is going to come back is the housing market. Retail is also going to improve and the manufacturing sector is going to follow; 2025 is going to be a much better year where growth is going to be close to two per cent.”