- Navigating Growth Amidst High Interest Rates and Population Surge
The Canadian economy is navigating a unique set of circumstances characterized by a "soft landing," as reported by the International Monetary Fund (IMF). High interest rates have effectively brought inflation down to the Bank of Canada's target range without triggering a recession, yet the overall economic growth remains low with inflation staying at the upper end of the 1% to 3% target (Mukherjee & Shakil, 2024). In response to cooling consumer prices, which have recently dropped to 2.7%, the Bank of Canada (BoC) implemented a 25-basis point rate cut to 4.75%, the first such cut among G7 countries in four years, with more cuts anticipated depending on economic data.
Significant population growth has played a crucial role in maintaining Canada's GDP growth despite recession-like conditions. Since mid-2022, Canada has added 2.1 million new consumers, which has prevented outright GDP declines amid rising unemployment and falling per capita output (Janzen & Freestone, 2024). The IMF has revised its GDP growth forecasts for Canada, projecting 1.3% growth in 2024 and 2.4% in 2025, making Canada the fastest-growing economy among the G7 nations by 2025 (Gowling, 2024). These adjustments reflect an increase from earlier forecasts and underscore the positive impact of population dynamics on the economy.
Figure 1: Canadian Real Per Capita GDP
Globally, the IMF forecasts stable growth rates of 3.2% this year and 3.3% next year, with developing and emerging markets growing at 4.3% annually (Gowling, 2024). Despite these optimistic projections, the IMF warns of persistent inflation risks, particularly in advanced economies, where high service costs and wage growth could necessitate prolonged higher interest rates. In Canada, the BoC's recent interest rate cuts aim to alleviate household financial pressures, with expectations that real per capita GDP will remain negative through this year but turn positive by the second half of 2025 as the impacts of high interest rates diminish (Janzen & Freestone, 2024).
- Canadian Housing Market Faces Slow Recovery Amidst Rising Inventories and Falling Housing Starts
The Canadian housing market saw a modest increase in home resales in June, following the first Bank of Canada interest rate cut in four years. Home resales rose by 3.7% from May but remained 9% below pre-pandemic levels, with most markets experiencing weaker sales compared to the previous year (Hogue, 2024). Rising inventories have provided buyers with more options, as new listings increased for the fifth time in six months, stabilizing prices nationwide. The national MLS Home Price Index, a tool to gauge a neighbourhood's home price levels and trends, showed minimal change this spring, with prices largely stagnant in Ontario and British Columbia, and modest gains in Quebec and the Atlantic provinces.
Figure 2: MLS Home Price Index – Canada
However, the housing market recovery is expected to be slow, with further interest rate cuts needed to significantly reduce ownership costs. June saw a 9% decline in the annual pace of housing starts, number new residential buildings that began construction during the reported month compared to May, primarily due to lower multi-unit starts in major centres like Vancouver and Toronto (The Canadian Press, 2024). While Montreal experienced a substantial increase in housing starts, overall starts in urban centres across Canada were down 13% year-over-year. Despite high current levels, experts anticipate a future decline in housing starts due to weak pre-sale activity, elevated input costs, and challenges in sustaining long-term momentum necessary to meet Canada Mortgage and Housing Corp.'s targets (The Canadian Press, 2024).
Figure 3: Canada’s June House Market Snapshot
- Canadian Employment Landscape: Rising Unemployment and Increased Competition
In June, the Canadian economy saw a slight decline in jobs, shedding 1,400 positions, which resulted in an unchanged overall job market but an increased unemployment rate of 6.4%. This trend has persisted for over a year, with 1.4 million people unemployed last month (Benchetrit, 2024). Demographic disparities are evident, as unemployment rates among Black and South Asian Canadians aged 25 to 54 rose significantly. Youth unemployment also surged to 13.5%, the highest since September 2014, excluding pandemic years (Benchetrit, 2024). The 1.6 percentage point increase in the unemployment rate, though smaller than in major recessions, marks the largest rise since the 1970s without the economy experiencing a recession (Janzen & Freestone, 2024).
Figure 4: Canadian Unemployment Rate
The influx of 1.3 million newcomers in 2023, including many young people, has intensified competition for jobs. This demographic shift, combined with deteriorating business sentiment, has led to significant year-over-year decreases in job vacancies across various industries, with overall job postings down 23% compared to 2023 (Gowling, 2024). Additionally, employers are increasingly offering part-time positions, often to more experienced workers, reducing job opportunities for youth and new entrants to the labour market. Despite a 5.4% increase in average hourly wages in June, economists caution that persistent wage growth could complicate potential Bank of Canada rate cuts aimed at easing the softer job market (Benchetrit, 2024; Gowling, 2024). Approximately half of the increase in the unemployment rate since the post-pandemic low is due to layoffs, which are up 20% from a year ago, and 40% is from students and new graduates struggling to find employment (Janzen & Freestone, 2024).
Financial Tip of the Month: Mid-Year Financial Check-Up
July marks the middle of the year, making it an ideal time for a financial check-up. Consider reviewing your budget, evaluating your emergency fund, checking in on your financial goals, and checking your credit score. By having a financial check-up will help you stay financially healthy and prepared for the remainder of the year.
At Alpen Investment Advisors, your trusted North Vancouver iA Investia team, we are committed to keeping our valued clients informed. We trust that you have found this market recap informative and insightful. Please do not hesitate to reach out to your dedicated financial advisor, jonathan@alpenia.ca for any questions about your portfolio or to help navigate the process of growing and preserving your wealth.
References:
Benchetrit, J. (2024, July 5). Canadian unemployment rate rises to 6.4%, with student summer jobs especially hard to come by. CBC. https://www.cbc.ca/news/business/june-labour-force-survey-1.7255140
Gowling, J. (2024a, July 10). Financial Post. Financialpost. https://financialpost.com/news/economy/jobless-summer-why-youth-unemployment-decade-high
Gowling, J. (2024b, July 17). Financial Post. Financialpost. https://financialpost.com/news/imf-forecasts-canada-fastest-growing-economy-g7-2025
Hogue, R. (2024, July 15). Rate cut gives small boost to Canada’s housing market - RBC Thought Leadership. RBC Thought Leadership. https://thoughtleadership.rbc.com/rate-cut-gives-small-boost-to-canadas-housing-market/
Janzen, N., & Freestone, C. (2024, July 17). Canada’s economy might not be in recession but it feels like one - RBC Thought Leadership. RBC Thought Leadership. https://thoughtleadership.rbc.com/canadas-economy-might-not-be-in-recession-but-it-feels-like-one/
Mukherjee, P., & Shakil, I. (2024, July 16). Canada’s economy appears to have achieved soft landing, says IMF. Reuters. https://www.reuters.com/markets/canadas-economy-appears-have-achieved-soft-landing-says-imf-2024-07-16/
The Canadian Press. (2024, July 16). Canadian housing starts were down 9% in June. What’s behind the drop. Global News. https://globalnews.ca/news/10627487/housing-starts-june-2024/
