The Canadian economy started 2023 with solid momentum, but the full impact of past interest rate hikes and some likely tightening of credit conditions should weigh on growth through the remainder of the year, says a new Provincial Monitor report released Tuesday by BMO Economics.
Robert Kavcic
The report, by Robert Kavcic, Senior Economist and Director Economics, said Real GDP growth is expected at 1.0 per cent this year, with negative prints possible in coming quarters.
“Growth is then expected to firm to 1.3 per cent in 2024. Housing has corrected sharply, but there are signs of stability for prices and a pickup in unit sales in some markets. Business investment is choppy, while government stimulus looks to add modestly to growth this year. A very tight job market should help cushion the impact of any downturn, but inflation remains sticky above the Bank of Canada’s comfort zone, leaving rate cuts as unlikely this year,” said the report.
“All provinces are grappling with inflation, higher interest rates and drum-tight labour markets. Alberta and Saskatchewan are expected to lead the country this year with real GDP at 2.0 per cent and 1.6 per cent, respectively. Demographic inflows and still-high oil prices are helping in Alberta, which has also barely seen a real estate downturn, while Saskatchewan is seeing major resource-sector project build-out. Manitoba remains steady, with growth expected roughly in-line with the national average this year and next.”
The report said Canada’s population surged by more than one million in 2022, the largest raw increase in the headcount on record, and the biggest year-over-year percentage increase since the early-1970s. This is having major implications across the country in areas like housing and consumer demand.
“Canada has seen a significant increase in international immgration flows. In recent decades, a downward trend in the birth rate has meant that net immigration has made up a larger portion of overall population growth. More recently, immigration flows have skyrocketed across the country, more than making up for pandemic-era restrictions. The push comes from the federal government’s immigration targets: 465k new permanent residents in 2023, rising to 500k by 2025. That’s a meaningful jump from the 303k average in the five years before the pandemic, and that level of immigration will add the most to population growth (roughly 1.3 ppts) since the 1950s,” it said.
Canadians are also moving around the country in numbers not seen in half a century. In the four quarters through 2022Q4, Canada saw almost 400k people move to a new province, the largest such flow since 1976, and about 125k more than the pre-COVID run rate. At fully one per cent of the population, these flows are not to be overlooked, even if they are dwarfed by international immigration rates.”
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