OTTAWA – Canada’s economy is slowing as consumer spending and savings have shrunk, according to new research from The Conference Board of Canada, which forecasts the country’s real GDP to grow by 1.3 per cent in 2023, followed by a weaker 1.1 per cent gain in 2024.
“Economic commentary in Canada typically revolves around a recession and whether it will be a hard or soft-landing, but slow motion might be a more accurate way of describing the coming years,” according to Ted Mallett, Director, Economic Forecasting at The Conference Board of Canada. “We believe the overall economy will be supported in large part by commodities, health care and other sectors still on the mend from the pandemic.”
Consumer spending remains surprisingly resilient amid flurries of economic turbulence, but unusually strong population growth has provided much of this support. Consumer confidence has improved over the past few months but remains low by historical standards. Low confidence typically heralds slower spending growth, particularly with the ongoing threat of a recession. Inflation also remains a pressing issue for the consumer outlook, due to fears that the inflationary bout could persist for longer than anticipated.
The labour market is increasingly being weighed down by the deceleration of the Canadian economy. Although employment growth exceeded expectations in the first quarter of the year, job growth is slowing and forecast to weaken over the coming quarters, dipping into negative territory in the first quarter of 2024. Canada’s unemployment rate remains low by historical standards, but a combination of weakening employment growth and relatively strong labour force growth in 2023 will cause the jobless rate to rise.
Canada’s labour market is likely to see major changes as rapid advances in AI models and their release through various applications have brought some new twists, not only to the long-term outlook but to the short- and medium-term outlooks as well. Shorter-term effects will be more nuanced, while the positive medium-term impacts will be seen in the applied sciences, management, culture, and recreation occupations.
Inflation concerns in the United States remain top of mind, given the economy in the U.S. continues to expand. The U.S. economy’s ongoing resilience is closely linked to the fact that interest-rate-sensitive sectors such as auto and housing, which generally tumble in the face of surging interest rates, have held up well. The Conference Board of Canada anticipates U.S. economic growth to slow in the second half of this year, but the economy will avoid slipping into a severe recession. The country’s GDP is anticipated to increase by 1.7 per cent this year and 1.1 per cent in 2024.
More broadly, top-line inflation in the global economy has declined in the world’s major economies, mainly because of lower energy and food costs. Labour costs, however, in the services sector of the world’s major economies continue to increase at a pace inconsistent with the 2.0 per cent inflation target.
Canada’s oil and gas industry has failed to achieve any significant increase in output so far this year. The Conference Board of Canada forecasts a 1.2 per cent contraction in the second quarter, attributed primarily to maintenance activities in various oil fields and the impact of wildfires in British Columbia and Alberta. Given the global economic slowdown, The Conference Board of Canada anticipates a continued softening of oil prices through the rest of the year, while investment in the energy sector is poised to rise in the near term.
The Conference Board of Canada is the country’s leading independent research organization. Since 1954, The Conference Board of Canada has been providing research that supports evidence-based decision making to solve Canada’s toughest problems.