We expect below-trend growth in 2024 amid more potent monetary policy transmission than in the U.S. Canadian homeowners, with their greater use of variable-rate mortgages, have felt the effect of the higher interest rates of recent years. Canada’s debt-service ratio—debt payments as a percentage of after-tax household income—stood near a record 15% at the end of 2023.

The pace of core inflation has slowed in 2024 and fallen into the 1%–3% target range of the Bank of Canada (BOC). We foresee continued progress in the inflation fight this year amid below-trend growth and restrictive monetary policy. A weaker labor market and a resulting easing of wage pressures should slow price increases for services unrelated to shelter.

Given progress in the inflation fight and below-trend economic growth, the BOC on June 5 became one of the first developed markets central banks to cut rates, decreasing its overnight rate target by 25 basis points, to 4.75%. We expect the BOC to be vigilant regarding prices but likely to cut its policy rate target by an additional 25–50 basis points this year.¹

Canada’s unemployment rate has climbed from its record low of 4.8% in 2022 to within our year-end 2024 target range, and we expect it to hover within that range for the rest of the year. Wage growth has moderated to around 5% year over year but remains well above its prepandemic average of 2.25%.