The Bank of Canada’s recent rate cut will offer a measure of relief for the Canadian economy, with a gradual recovery expected to extend throughout the year, according to new research from The Conference Board of Canada. Real GDP is forecast to increase by 1.8 per cent on an annualized seasonally adjusted basis in the last half of 2024, compared to an estimated 1.4 per cent rate in the first half.

“The Bank of Canada’s decision to trim interest rates signals a turning point for Canada, but it will likely require several rounds of cuts to significantly influence consumer and business spending,” said Ted Mallett, Director, Economic Forecasting at The Conference Board of Canada. “Looking ahead, GDP growth is projected to recover to 2.1 per cent in 2025 as these measures take effect across the economy.”

Although the recent interest rate cut alone will have minimal impact on mortgage rates, the move signals an end to a period of rate hikes, potentially shoring up homebuyer interest and rekindling market activity as additional rate cuts begin. Despite this small step forward, the federal government’s initiatives to address Canada’s housing affordability challenges face substantial obstacles which are likely to hinder their effectiveness.

The U.S. economy slowed significantly entering 2024. While the labour market remains resilient, there are signs of weakening, with employment growth losing momentum and unemployment projected to edge upwards. Additionally, consumer spending is moderating under the pressure of high interest rates and the softening labour market. Economic growth is forecast to weaken in 2024 before declining further in 2025.

Canada’s trade sector, therefore, will play a more muted role this year. Energy exports will receive a boost from the completion of the Trans Mountain Pipeline expansion, but softer U.S. demand will play a large part in constraining export growth overall. Meanwhile, import growth is set to accelerate over the short term, spurred by improving domestic demand conditions. Despite these shifts, exports will outpace imports, and the trade sector will contribute marginally to GDP growth in 2024.

With the lingering effects of tight monetary policy, demand for labour is expected to recede, while strong population growth will continue to bolster labour supply. As a result, labour force gains will outpace job gains, pushing the unemployment rate up and helping to rebalance the market after a prolonged period of extreme tightness.

Private non-residential investment showed signs of a recovery in the first quarter of the year. With falling interest rates, easing labour constraints, and an economy on the mend, this momentum is expected to build moving into 2025. Major developments in the automative and potash sectors, including Honda Canada’s $15 billion project in Ontario and Jansen’s $14 billion project in Saskatchewan, will lead growth.

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