As the final curtain fell on 2023, many Canadian entrepreneurs might be breathing a sigh of relief. Still, the road ahead for 2024 is paved with cautious optimism rather than unbridled enthusiasm. Despite grappling with persistent inflation and escalating interest rates, the Canadian economy displayed a degree of resilience in the past year. However, as we delve into the 2024 economic forecast, a more measured outlook emerges, signalling a shift into neutral territory.
Highlights of 2023: Surprises and Setbacks
At the onset of 2023, economists questioned the feasibility of cooling down the Canadian economy without triggering a recession. Yet, against the odds, the Canadian economy managed a 1.1% growth, slightly below its 2% potential but surpassing initial forecasts. The key driver was robust population growth, fostering demand that, in turn, supported the labour market. While the unemployment rate experienced a late-year uptick, it was attributed to a growing active working population rather than a hiring slowdown.
The Bank of Canada responded to this resilience by raising its key rate by 75 basis points, reaching 5.0% by the year’s end. However, this led to uneven growth, impacting interest-sensitive sectors like housing. The housing market witnessed a marked slowdown, with households tightening their spending and a global economic deceleration affecting business investment and exports.
Forecast for 2024
- GDP Growth – The Canadian GDF is forecasted to grow by 0.9%, with one or two quarters of negative growth early in the year. Economists expect uneven growth due to high-interest rates affecting housing and business investment sectors.
- Inflation – Inflation is expected to fluctuate between 2% and 3%, with certain items like food and housing experiencing higher price increases. Food price inflation, on the other hand, is forecasted at 4-5% due to global market dynamics and a weaker Canadian dollar.
- Interest Rate Outlook – Economists are anticipating a more predictable interest rate environment. Bank of Canada expected to lower key rates in the summer of 2024, but rates will remain higher than in the past 15 years.
Risks for 2024
- Geopolitical Conflict – Growing tensions could disrupt energy markets and reignite inflation, leading to further rate hikes.
- Persistent Inflation – Overly strong demand fueled by population growth could lead to sustained inflationary pressures.
- Collapsing Demand – Even without rate hikes, current interest rates may challenge consumers and businesses, particularly due to high debt levels.
Regional Variances in Economic Impact
- Provinces and Sectors: Sensitivity to interest rates results in varied impacts, with real estate and financed goods feeling the slowdown more acutely.
- Monetary Policy Impact: The Bank of Canada’s efforts are effective, but inflation reduction varies across regions, with Quebec experiencing the highest inflation rate.
- Regional Growth Outlook: Provinces like Alberta and Saskatchewan, less dependent on household spending, are set to grow above the national average.
Challenges and Opportunities for Entrepreneurs in 2024
- Human Resource Strategy
- Opportunity: Economic slowdown facilitates easier workforce acquisition.
- Challenge: The aging population poses a long-term hiring challenge, emphasizing the need for a robust human resource strategy.
- Financial Health and Technology Adoption
- Need: Financial prudence is essential with high-interest rates and slowing demand.
- Opportunity: Embrace technology for productivity enhancement and improved competitiveness.
- Strategic Preparedness:
- Advice: Entrepreneurs should stay nimble, adapting to economic shifts.
- Strategic Advantage: Early adoption of technology positions businesses for success when the economy rebounds.
As entrepreneurs navigate the Canadian economic landscape of 2024, a cautious approach, strategic resilience, and a forward-looking mindset will be crucial. Challenges are accompanied by opportunities for those who can adeptly maneuver through uncertainties, setting the stage for long-term business success.