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.

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.

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.