Interest rate cuts not expected until Q2 2024, says RSM Canada

15 September 2023 2 min. read
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As the Canadian economy remains resilient, buoyed by record levels of immigration, Canadians shouldn’t expect an interest rate cut until at least Q2 2024, according to RSM Canada's most recent quarterly Real Economy report.

In RSM’s updated economic forecast, Canada’s recession probability over the next 12 months has dropped from 75% to 60%. Despite earlier predictions, a recession in 2023 is now unlikely, but more feasible in the second half of 2024.

RSM projects the economy will grow 0.4% in Q3 2023 and remain steady in the fourth quarter, with the slowdown continuing into 2024.

“The Canadian economy has displayed remarkable resilience this year, defying expectations of a downturn. While we may muddle through the rest of the year with slower growth, Canada will likely avoid a recession this year," said Tu Nguyen, economist for RSM Canada.

Interest rate cuts not expected until Q2 2024, says RSM Canada

Canada’s economy is steadily cooling after months of high inflation. Canada’s inflation rate has declined to 2.7%, the lowest in the G7, driven by lower energy prices. However, core inflation measures have remained sticky because of high prices of services.

Though job vacancies remain higher than pre-pandemic, they have dropped to the lowest level since May 2021, indicating a cooling labour market. RSM expects the unemployment rate to rise to 5.6% by year-end, still below the pre-pandemic average of 5.7%.

Falling inflation and cooling labour demand may be enough for the Bank of Canada to continue holding a 5% rate, RSM says, though one more hike is possible if emerging data tells a different story. In any case, rate reductions aren’t likely until Q2 2024.

The housing market remains strong as demand continue to outpace supply – a function of minimal housing starts and very high immigration levels.

Consumer spending, meanwhile, has been resilient and probably financed by pandemic-era savings. However, household debt has risen to 180% of income. People who bought into Canada’s housing bubble are now facing higher interest rates, while renters face skyrocketing prices. Spending a larger chunk on housing means less money for goods and services.