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Canada’s Economy Still Finding its Footing Amid Slowing Inflation and Falling Interest Rates

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Canada’s Economy Still Finding its Footing Amid Slowing Inflation and Falling Interest Rates

 

 

 

 

 

The Canadian economy is gradually regaining its footing, but sluggish growth is expected to persist through the remainder of 2024 as the effects of easing inflation and declining interest rates take time to materialize, according to new research from The Conference Board of Canada. Canada’s GDP is forecast to increase by a modest 1.1 per cent in 2024 and a further 1.7 per cent in 2025.

 

“Following years of slow progress, business investment is expected to gain substantial momentum in 2025,” said Cory Renner, Associate Director, Economic Forecasting at The Conference Board of Canada. “This resurgence in capital spending will be spearheaded by the automotive and resource sectors, supporting Canada’s recovery.

 

Canadian businesses remain cautious about the lingering effects of elevated interest rates on investment plans. However, as labour costs stabilize and rates continue to decline, these concerns are gradually easing. The automative and resources sectors are expected to drive the sector’s growth.

 

Canada’s unemployment rate has steadily risen in the face of rapid population growth and slower job creation. With a high-interest rate environment and weak business confidence tempering private sector hiring, job growth is expected to remain weak into the final quarter of 2024.

 

Housing affordability remains a pressing concern for Canadians. With growth in housing costs projected to slow, however, there are some signs of relief. While recent policy changes aimed at reducing immigration levels and boosting housing supply are likely to only marginally temper housing costs, these measures are expected to prevent conditions from worsening.

 

Despite a temporary slowdown earlier this year and emerging weakness in the U.S. labour market, the U.S. economy continues to outpace expectations. The shift toward looser monetary policy is anticipated to stimulate key sectors like housing, which has been strained by high mortgage rates and housing prices. The U.S. economy is forecast to have expanded by 2.6 per cent in 2024, and will grow another 1.8 per cent in 2025.

 

After a subdued performance in 2024, Canada’s international trade sector is set to rebound in the coming years. Stronger demand in the U.S. will fuel growth in net exports, while imports are expected to rise at a slower pace However, the upcoming U.S. election is posing significant downside risk to tax and trade policy.

 

About The Conference Board of Canada

 

The Conference Board of Canada is the country’s leading independent research organization. Since 1954, The Conference Board of Canada has been providing research that supports evidence-based decision making to solve Canada’s toughest problems.

 

Posted October 10, 2024

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