Updated on January 4, 2024
Explore the Details of Canada’s Economic Shift: Is an Early 2024 Recession on the Horizon?
Early 2024 Recession in Canada
Early Indicators Suggest a Possible Canadian Recession in 2024 due to High Interest Rates and Economic Challenges. According to preliminary data from Statistics Canada, consumer spending is negatively impacted, and forecasts hint at a recession beginning in the first half of 2024. Increased borrowing rates are expected to burden the economy, with projections indicating a downturn lasting until the second quarter of 2024, marked by a 1.1% peak-to-trough decrease in the gross domestic product. Oxford suggests that the recession might have initiated in the third quarter of 2023.
Dive Deeper into the Anticipated Recession in Canada: Exploring the Factors and Implications. Explore this article for a comprehensive understanding of the upcoming economic challenges.
What is meant by Recession?
In technical terms, a recession is typically identified by two consecutive quarters of negative economic growth. However, analysts often consider broader indicators, such as prolonged periods of low or negative real GDP (output) growth accompanied by a significant rise in the unemployment rate, to classify a downturn.
A recession is characterized by a significant, widespread, and prolonged decrease in economic activity. Economists measure the duration of a recession from the peak of the previous growth to the trough of the downturn. While a recession may only endure for a few months, the recovery to pre-recession economic levels can take years.
All We Know About Canada’s Economy Change
Canada’s economic outlook remains weighed down by rising borrowing rates, leading to a peak in growth expected in the first half of the upcoming year. However, a shift towards declining interest rates could spur activity in the latter part of 2024.
Our projections for 2024 indicate a modest 0.9% increase in Canada’s real GDP, marked by a couple of quarters with negative growth in the initial months. Contrary to some economists’ skepticism about the economy’s expansion, Capital Economics forecasts a contraction of 0.2% in the fourth quarter and 1% in the first quarter of 2024.
The country’s inflation rate, which has consistently averaged around 2% annually over the past three decades, is expected to experience heightened consumer belt-tightening in the first half of 2024, resulting in expenditures falling below 1%. Notably, during the 1970s and 1980s, inflation rates were considerably higher, averaging 8% and occasionally reaching 13%.
In the coming months, food prices are anticipated to maintain an inflation rate between 4% and 5%, influenced by international market dynamics and the depreciation of the Canadian currency. Moreover, housing-related costs, including rent and mortgage interest, are expected to continue outpacing the Bank of Canada’s 2% inflation target.
Future Predictions
The preliminary GDP estimate from Statistics Canada suggests the possibility of Canada entering a technical recession. As of early 2024, the economy faces challenges from increased interest rates, inflation, forest fires, and drought conditions.
The Bank of Canada has opted to maintain its benchmark interest rate at five percent. The economy’s growth is expected to be further hampered by high interest rates, particularly if more individuals choose to refinance their mortgages at elevated rates. A recent Bank of Canada prediction indicates that economic growth may remain subdued until the middle of 2024.
Oxford forecasts a 1.2% reduction in overall government income in 2024 due to the economic slowdown. Concurrently, increased unemployment, social assistance, and debt payments are expected to drive government expenditure up by 4.4%. This could lead to a $66 billion deficit this year, a significant shift from the government’s total fiscal balance surplus of $2.2 billion in 2023.
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