August 19, 2024
Our outlook for year-end 2024
1.25%–1.5%
Economic growth,
year over year
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.
2.1%–2.4%
Core inflation, year over year
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.
3.75%–4%
Monetary policy rate
Softening growth in the labor market and the broader economy amid continued disinflation has led us to lower our year-end 2024 forecast for Canada’s policy interest rate. The Bank of Canada followed its June 5 policy interest rate cut with a second successive quarter-point cut on July 24, to 4.5%. We foresee the equivalent of two to three additional quarter-point rate cuts this year.
6%–6.5%
Unemployment rate
The labor market is stagnating, recent data suggest. The unemployment rate is near the high end of our year-end forecast range of 6%–6.5%, reflecting weak economic growth. Risks have increased that the unemployment rate could rise more than our forecast, as still-restrictive monetary policy could eat into demand and, ultimately, corporate profitability.
What I’m watching
The effect of policy easing on below-trend growth
Canada’s economic growth, unlike that of the U.S., remains below its prepandemic trend. Restrictive monetary policy intended to fight inflation constrained activity, leaving Canadian GDP growth well below potential. However, with the BOC having started a policy-easing cycle, we anticipate that the output gap could remain around 4% at year-end 2024.
Vytas Maciulis,
Vanguard Economist
Notes: GDP is indexed to 100 in the fourth quarter of 2007 (not shown). The prepandemic trend line is based on data from 2015 through 2019.
Sources: Vanguard calculations using data from Refinitiv as of March 31, 2024, and Vanguard forecasts thereafter.
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