Morning Market Brief: November 30, 2023

Slower economic growth expected in Canada?

S&P Global Ratings expects the Canadian economy to grow at a relatively muted pace in 2024. Economic activity has fallen recently as households and businesses struggle with high interest rates and elevated prices. A slowdown in economic conditions could help the Bank of Canada (BoC) bring down inflationary pressures, which remain above its 2% target.?

1. S&P projects Canadian economic growth of only 0.8% in 2024. This updated projection is down from S&P’s earlier forecast of 1.2% growth next year. The rating agency also lowered its growth projection for this year to 1.1%.
2. S&P believes Canada’s economy will stagnate as tighter financial conditions weigh on Canadian households and businesses. Furthermore, slower global demand might also challenge Canada’s economy.
3. The rating agency also predicts Canada’s labour market might weaken. Weaker economic activity could hinder business hiring and raise unemployment. S&P predicts Canada’s unemployment rate will average 6.1% over 2024. The jobless rate currently stands at 5.7% as of October 31.
4. Statistics Canada will announce Canada’s gross domestic product for the third quarter of 2023 today. After falling by 0.1% in the second quarter, a Bloomberg survey of economists estimates another sluggish quarter, expecting annualized growth of 0.1%.

While we do not have a crystal ball, signs point to uncertain conditions in Canada’s economy next year. The aggressive interest-rate increases from the BoC appear to be taking hold, helping to slow growth and quell domestic demand, which should help bring down inflation. Bond yields have fallen recently, which has supported bond prices. With interest rates expected to fall, it could be an opportune time to review your exposure to longer-term bonds.

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