What does 2024 have in store for the Canadian economy?

It’s been a long time since economic data in Canada showed very much promise. The last 18 months have been defined by a cost of living crisis and a slowing economy.

But a handful of economic indicators give us some hope for 2024.

Inflation has slowed dramatically, and the economy didn’t actually slip into recession.

“We’ve just had one of the biggest declines in inflation that we’ve ever seen without a full-on recession. That’s great news,” said Douglas Porter, chief economist at BMO Capital Markets.

“Now, can we get the rest of the way down to two per cent? Without much pain? That’s still the big question for 2024.”

Last year was dominated by the double whammy of sharply rising interest rates and stubbornly high prices.

2024 should finally see some relief on both fronts. But it will pose new challenges as well.

The Bank of Canada has been trying to get inflation back to that one- to three-per-cent window since price growth kicked off in 2021. Forecasts show CPI should be firmly within that band in the first three months of the year.

Bank of Canada Governor Tiff Macklem spent most of his year-end news conference studiously avoiding anything that could be seen as a declaration of victory.

But he certainly came close with his financial lingo.

“The excess demand that drove prices higher over the past two years is now gone, as higher interest rates and tighter global financial conditions have helped the economy rebalance,” he said on Dec. 15.

But as one problem fades, another becomes more vivid.

The Canadian economy slowed throughout the year as higher interest rates bit into households and businesses.

WATCH | 4 things to watch for in 2024 when it comes to the economy: 

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High interest rates, inflation and a slowing economy hit Canadian wallets hard in 2023. CBC’s Peter Armstrong breaks down the financial outlook for 2024 and why there’s still a lot of uncertainty ahead.

For months, the economy has stagnated. It hasn’t grown at all in two quarters. Heading into 2024, the concern shifts from inflation to the potential for a recession.

“With the cost of living still increasing too quickly, and with growth subdued, the next two to three quarters will be difficult for many,” said Macklem.

What will happen with the GDP?

Canada’s economy was bolstered by historic population growth last year. But when you adjust economic growth on a per capita basis, the anemic GDP numbers look even worse.

“Canadian GDP has already declined for five consecutive quarters on a per-capita basis with Q4 likely to stretch that run to 6,” wrote RBC economists  Nathan Janzen and Claire Fan.

Meantime, the economy still hasn’t absorbed the full impact of all those rate hikes. The Bank of Canada says that usually takes about 18 months.

The central bank’s first hike came in March of 2022. That was 21 months ago. Economists such as Royce Mendes, managing director and head of macro strategy at Desjardins Capital, say more pain is coming.

“There’s a wall…

Read More: What does 2024 have in store for the Canadian economy?

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