As Canada enters 2024, its economic outlook appears precarious. Despite initial signs of momentum, the trajectory is concerning due to the impact of high-interest rates on both household finances and business spending. The economy is at risk of transitioning from a mere sputter to a more severe recession, potentially resulting in a significant rise in unemployment.
Economist Jim Stanford from the Centre for Future Work suggests that a shallow technical recession is probable. The struggle against economic headwinds becomes evident as data points towards marginal growth or even contraction. For instance, indicators of consumer spending and business investment may show signs of strain, reflecting the challenges faced by the Canadian economy.
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In such a scenario, policy measures and strategic interventions become crucial to prevent a deeper downturn. The year 2024 may pose a critical test for Canada’s economic resilience and its ability to navigate through turbulent times.
Canada’s economic landscape is raising alarms as it inches closer to a technical recession, defined by two consecutive quarters of negative real GDP growth. The Bank of Canada’s decision to maintain interest rates at their highest since 2001, coupled with inflation surpassing the central bank’s target, has led to a slowdown in spending by both households and businesses. In October, real gross domestic product remained stagnant, falling short of the expected 0.2% growth, marking the fifth consecutive month without positive month-over-month growth.
Economists at the National Bank of Canada note that such a prolonged downturn has only occurred twice before, during the 2008-2009 financial crisis and the 2015 oil price collapse that halted Alberta’s economy. The current situation is described as the Canadian economy being “in the doldrums,” despite staggering population growth.
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A concerning aspect is that recent growth has been concentrated in government-related sectors, while over two-thirds of private-sector segments posted stagnant or negative growth in the previous six months—a pattern reminiscent of previous recessions. National Bank stands alone among the Big Six banks in predicting two consecutive quarters of negative real GDP growth in the upcoming year, signaling a potential technical recession starting in the first quarter. The economic landscape demands careful attention and strategic interventions to avert further setbacks.
High-interest rates in Canada are disproportionately affecting younger and lower-income households, revealing a stark dichotomy in the economic impact across demographics. The strain is notably more pronounced on a per household basis, with consumer spending taking a hit, particularly among lower-income groups. The overall weakness in household spending is partially obscured by rapid population growth, masking the true extent of the economic challenges. While aggregate data might suggest strength, the reality is that the burden is unequally distributed among households.
Compounding the issue is the imbalance in the job market, where the number of people seeking employment surpasses the jobs created, despite a generally positive trend in job creation. This creates a concerning scenario where economic growth might be misleadingly buoyed by population expansion, while a closer look reveals a more challenging landscape for many Canadians, particularly the younger and less affluent segments of the population. Policymakers need to address these disparities to ensure inclusive and sustainable economic recovery.
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In 2024, businesses in Canada are expected to sustain spending cuts, exacerbated by the challenges of repaying loans incurred during the global COVID-19 pandemic, notably through programs like the Canada Emergency Business Account. This trend is likely to persist, potentially leading to a surge in unemployment rates beyond the 6.1% forecasted by the Conference Board for 2024.
How big an impact is that (business weakness) going to have, especially on small businesses across Canada?
The impact is particularly worrisome for small businesses across the country, struggling under the weight of economic uncertainties and debt repayment obligations, contributing to a fragile economic environment with potential repercussions on employment and overall economic stability.
As a looming recession raises financial anxieties among Canadians, proactive measures become essential. To prepare for economic uncertainties, prudent steps include an immediate reduction in non-essential spending, prioritizing the payoff of credit card debt, vigilance in bill payments to avoid late charges, and preparing for potential job loss. Enhancing employability and considering recession-proof career transitions also emerge as strategic moves. By adopting these six tips, individuals can navigate the economic challenges ahead, fortifying their financial resilience in the face of an imminent downturn.
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