Gradual recovery for Canadian economy (and only because BoC finally started cutting rates)

The Conference Board’s economic outlook

Based on market activity, experts at the Conference Board of Canada believe the recent rates cuts from the Bank of Canada were an optimistic signal that helped solidify the end of rate hikes and offered incentives to homebuyers, as well as business owners. homebuyer interest and rekindle real estate market activity as additional rate cuts begin.

Despite this small step forward, the federal government’s initiatives to address Canada’s housing affordability challenges face substantial obstacles, which are likely to hinder their effectiveness.

South of the border, the US economy slowed significantly entering 2024. While the labour market remains resilient, there are worrying signs. This starts with employment growth losing momentum and unemployment projected to increase.

Additionally, consumer spending is moderating under the pressure of high interest rates and the softening labour market. Economic growth is forecast to weaken in 2024 before declining further in 2025.

As a result, Canada’s trade sector may play less of a significant role this year. Energy exports will certainly receive help from the completion of the Trans Mountain pipeline expansion, but the softer US demand will play a large part in constraining export growth overall.

Meanwhile, import growth is set to accelerate over the short term, as a result of improving domestic demand conditions. Despite these shifts, exports will outpace imports, and the trade sector will contribute marginally to GDP growth in 2024.

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Labour force and other predictions

Thanks to the lingering effects of tight monetary policy, demand for labour is expected to recede. At the same time, a strong population growth will continue to strengthen labour supply. As a result, labour force gains will outpace job gains. This means the unemployment rate will be pushed up, which the Conference Board says will help rebalance the market after a prolonged period of extreme tightness.

Private non-residential investment showed signs of a recovery in the first quarter of the year. Thanks to all the factors already mentioned – the falling interest rates, less labour constraints and an economy trending upwards – this too is expected to grow in 2025.

Major developments in the automotive and potash sectors, including Honda Canada’s $15 billion project in Ontario and Jansen’s $14 billion project in Saskatchewan, will lead growth.

Impact on housing prices

According to the Conference Board of Canada, recent interest rate cuts will have minimal impact on mortgage rates; however, it is assumed that potential home buyer interest will rekindle the real estate market if there are additional rate cuts.