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The Canadian economy is facing mounting challenges with limited potential for an upside surprise, setting the stage for a weak start to 2024, predicts Manulife Investment Management.
From the retreat of the consumer to limited business investment to stress in the housing sector to the weak global environment, there seems to be little reprieve from the headwinds kicking off the year, Manulife’s director of global macro strategy, Dominique Lapointe, wrote in the Jan. 18 forecast.
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“Unfortunately, it’s hard to see a good year for growth,” he said.
The economy slowed significantly in 2023, with gross domestic product growth falling from 2.7 per cent year-over-year in January to a likely reading of 0.8 per cent in November.
Canada’s level of economic activity hasn’t increased since May of last year and has declined almost continuously since September 2022 on a per capita basis, the report said. Eight out of 20 industries contracted in October 2023 on a year-over-year basis, with industries sensitive to interest rates, notably manufacturing and construction, leading the decline.
Lapointe said that higher interest rates, coupled with high inflation, have led consumers to reduce their spending. With 10 per cent of mortgage borrowers in Canada on variable rates and the majority facing renewals within the next few years, Canadians will need to set aside even more money in their monthly budgets.
Consumption patterns show Canadians are spending a little less on luxury goods and more on basics, he said, something that typically happens as the economy softens.
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