Will Canada Face a Recession in 2024?

Will a recession hit Canada in 2024?

Until recently, the Canadian economy was weighed down by severe inflation that seeped into many sectors, prominently the housing sector. The crisis placed many assets out of the average working class's reach and necessitated the Central Bank's intervention through rate hikes. As understood in economic principles, a rate hike stems the money flow into the economy- thus bringing down inflation. If enough time transpires, the situation eventually turns into a recession or a period of reduced economic activity and regression of growth.

Recession fears have lingered since the start of the year, mostly due to the Bank of Canada's restraint in implementing rate cuts, which have remained at 5% since July 2023. While a less-than-stellar labour market and improvements in inflation indicate an ideal time for rate cuts, the Central Bank is still managing a housing sector that could spiral back to unmanageable levels if rate cuts are implemented too early.

Given the circumstances, this article will examine Canada's recession chances in 2024 and what the future could look like for the economy.

What is the Bank of Canada's position?

The Bank has been reticent in revealing timelines for any future rate cuts. Speaking to Reuters, Tiff Macklem, the Governor of the BoC, refused to divulge any details of a rate cut, stressing that monetary policy was an inherently slow process and that the Bank would be taking decisions one at a time.

His opening remarks to the Canadian Senate's banking committee acknowledged the improving situation and the need to witness some stability before embarking on rate cuts.

"What do we need to see to be convinced it's time to cut? The short answer is we are getting closer."

Adding, "We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained."

The Central Bank's caution is warranted given Canada's overall inflation, pegged at 2.9% in March, which is still some ways off from the BoC's target of 2%.

Is a Recession in the pipeline?

The Bank of Canada's decision to maintain its lending rates has sacrificed some economic momentum for better control over inflation. So far, it has successfully arrested inflation at the cost of a stifled economy. But are these legitimate signs of a pending recession?

The picture in this regard is one of optimism. The Canadian economy kicked off 2024 with two consecutive months of growth, growing 0.2% in February month-on-month. This puts the GDP on track for a 2.5% quarter-on-quarter annualized for the first quarter of 2024, rare for an economy in recession.

A more worrying trend has been Canada's rising unemployment rate, but even this is more attributable to an inflow of students and new graduates and not job cuts. According to an RBC Proof Point article, nearly half of the 0.8 increase in unemployment is attributable to longer job searches for students and new graduates not yet inducted into the workforce.

Summarizing from the points above, it is fair to state that the economy displays worrying trends but nothing to suggest an all-out Recession. Future predictions will depend on the BoC's monetary policies and when the rate cuts kick in, as this slight rebound is unlikely to sustain itself without a helping hand from the Central Bank.