Inflation uptick could mean interest rates stay higher for longer
Global News
New economic outlooks released this week expect interest rates will start to decline in 2024, but at a slower pace than previously thought.
Stubborn inflation might not warrant another interest rate hike, but could mean the Bank of Canada keeps its policy rate higher for longer, according to new forecasts released this week.
An updated economic outlook from Deloitte Canada released Thursday shows a rougher path than first thought for gross domestic product — the benchmark measure for Canada’s economic output.
“Over the near term, we expect the economy to continue to struggle in the face of high household debt, soaring interest payments and stubbornly persistent inflation,” the report reads.
Many economists were surprised last month by news that Canada’s economy contracted slightly in the second quarter of this year. Deloitte is calling for continued GDP decline for the remaining quarters of 2023 before a return to modest growth starting in 2024.
All told, the firm now expects real GDP growth of 1.0 per cent in 2023 and 0.9 per cent in 2024, revised down from expected increases of 1.3 per cent and 1.0 per cent, respectively, in an earlier June forecast.
Deloitte said that while an economic slowdown tied to the Bank of Canada’s interest rate tightening cycle has long been expected, it’s finally coming to bear.
The report cites households drawing down pandemic-era savings and some homeowners shifting their mortgages into negative amortizations as factors that pushed back the slowdown, but said these impacts may have “run their course” en route to a slower fall and winter.
Deloitte also expects that population growth tied to strong immigration levels will outpace job gains in Canada, driving the unemployment rate to 5.9 per cent in Canada in early 2024, up from the 5.5 per cent reported for August.
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