According to a recent forecast from Manulife Investment Management, Canada’s economy is poised for a difficult beginning to 2024, with limited potential for positive surprises. Dominique Lapointe, the Director of Global Macro Strategy at Manulife, highlighted several factors contributing to this outlook, including reduced consumer activity, minimal business investments, housing sector stress, and a challenging global economic environment.
Lapointe’s forecast, dated January 18, underlines the lack of respite from these prevailing headwinds as the new year unfolds, making it hard to anticipate robust economic growth in the coming months. The Canadian economy experienced a significant slowdown in 2023, with year-over-year GDP growth declining from 2.7 percent in January to an anticipated 0.8 percent in November.
The report notes that Canada’s economic activity hasn’t seen an uptick since May of the previous year and has exhibited a nearly continuous decline since September 2022 on a per capita basis. Furthermore, in October 2023, eight out of 20 industries experienced year-over-year contraction, with sectors sensitive to interest rates, particularly manufacturing and construction, leading the decline.
Lapointe attributes the reduced consumer spending to higher interest rates and significant inflation. With approximately 10 percent of Canadian mortgage borrowers having variable rates and many facing renewals in the near future, Canadians will need to allocate more of their monthly budgets to mortgage payments.
Consumer spending patterns have shifted, with Canadians cutting back on luxury purchases and focusing more on essential items, a typical trend during economic softening.
Despite the challenging start to the year, Lapointe advises Canadians to remain informed about the economic landscape and plan accordingly. He emphasizes that the intention is not to create alarm or undue pessimism but to provide a clear understanding of the prevailing weak economic conditions.