Canadians have little to be hopeful for this year when it comes to the economy and the ongoing affordability crisis with some economists predicting a recession.
True North spoke to a handful of economists who offered their predictions for Canada’s economic outlook for 2024.
Economists generally agree that Canadians will more than likely be left worse off after 2024 than before, though the degree to which living standards and affordability will deteriorate is debated.
“I don’t believe that affordability will meaningfully improve this year, but it also is unlikely to deteriorate so aggressively as it did from 2021 to 2023,” said BMO chief economist Doug Porter.
The historically high price inflation that Canadians have been seeing in the past few years has tapered off to 3.1% as of November 2023, as the Bank of Canada has been hiking up interest rates to tighten the money supply.
It is agreed that inflation will more than likely dip below 3% and that the Bank of Canada’s official interest rates will edge lower towards the middle of the year.
However, economists noted that the damage several years of inflation did to affordability cannot be undone and that we are nowhere close to undoing that damage. As Financial Post columnist Matthew Lau noted, current price levels are about 9% higher than what they would have been if the consumer price index had followed its pre-2021 trend.
“I don’t believe that affordability will meaningfully improve this year, but it also is unlikely to deteriorate so aggressively as it did from 2021 to 2023,” said Lau.
Looking at housing affordability, one economist predicted that while the Bank of Canada drawing interest rates down may provide some relief, this may drive home prices higher due to an increase in demand. Renters will also face ongoing pressure on their rents, furthering the affordability crunch.
Economists agree that the economy has been seeing a general lack of growth in the past year, with one economist noting that per capita GDP growth was negative in the past five fiscal quarters. This trend will likely continue, but the extent to which this will happen is debated.
Opinions varied from the belief that a recession may just be avoided and resemble something of a “recessionette” to views that Canada has already entered a recession that will worsen.
There was some disagreement as to the extent to which the federal government’s fiscal policy was contributing to Canada’s economic woes.
Lau asserted that the government’s fiscal and regulatory policy prevent the free market from functioning properly and are eroding Canadians’ standard of living.
“Government overspending and regulatory initiatives are discouraging business investment, reducing economic productivity, and eroding standards of living,” said Lau.
“The federal government’s fiscal and regulatory plans, including raising economically damaging taxes in 2024, will continue to be a severe economic drag.”
However, Porter claimed policymakers are not the primary drivers of economic success and that fiscal policy is likely to have a neutral effect on the economy.
“But my prior leanings would be that policy is not the main driver of whether Canadians will be better or worse off — that’s driven more by how hard people work, how much they invest and how innovative we all are, and policymakers are not the primary drivers of how successful an economy is,” said Porter.
“Fiscal policy is likely to be about neutral, as Ottawa and many of the provinces are constrained by rising interest costs and already have sizeable budget deficits.”