Canadian mortgage renewals will weigh on economic growth: Deloitte

Global News
26 Jun 202402:00

Summary

TLDRThe head of Canada's Central Bank indicates a 'soft landing' scenario, aiming to slow the economy to control inflation without causing a recession. Despite inflation nearing the 2% target, a new forecast by deoe predicts the central bank's benchmark interest rate will end 2024 at 4.25%, dropping to 2.75% by 2025. This will provide relief for variable rate debt payments but may not prevent financial strain for those with mortgage renewals post-pandemic. deoe also warns of risks to Canada's economic resilience due to weak business investment and productivity issues.

Takeaways

  • 🇨🇦 The head of Canada's Central Bank believes a soft landing is possible, aiming to slow the economy to reduce inflation without causing a recession.
  • 📉 Inflation in Canada is not yet at the 2% target but has significantly decreased, increasing confidence in reaching the target.
  • 🔄 A new forecast from Deloitte predicts Canada narrowly avoided a technical recession in late 2023 and is showing signs of strength in 2024.
  • 📉 Deloitte forecasts that the central bank's benchmark interest rate will end 2024 at 4.25%, with further cuts expected in 2025 to reach 2.75%.
  • 💸 This interest rate reduction is expected to provide financial relief for households and businesses with variable rate debt.
  • 🏡 However, Deloitte's Chief Economist warns that many Canadians with mortgages will face higher interest costs upon renewal, potentially impacting economic growth.
  • 📈 Despite the positive outlook, there are risks ahead, including weak business investment and Canada's ongoing productivity problem.
  • 🌐 These issues could affect Canada's long-term economic resilience.
  • 🏢 Deloitte also cautions that the upcoming wave of mortgage renewals could bring financial pain to those who benefited from low rates during the pandemic.
  • 📚 The script highlights the need for continued monitoring of economic indicators to ensure a soft landing is achieved.

Q & A

  • What is a 'soft landing' in economic terms?

    -A 'soft landing' refers to a scenario where an economy slows down enough to control inflation without entering a recession, thus avoiding a spike in unemployment.

  • What does the head of Canada's Central Bank say about the country's economic trajectory?

    -The head of Canada's Central Bank believes they are on track for a soft landing, indicating a slowdown in the economy to control inflation without causing a recession.

  • What is the current status of inflation in Canada according to the transcript?

    -Inflation is not yet at the 2% target, but it is closer, and there is confidence that it will continue to move closer to the target with sustained easing.

  • What does the forecast from deoe suggest about Canada's economy?

    -The forecast from deoe suggests that Canada narrowly avoided a technical recession in the second half of 2023 and is showing strength in the current year, warranting a couple of rate cuts.

  • What is deoe's forecast for the central bank's Benchmark interest rate at the end of the year?

    -deoe forecasts that the central bank's Benchmark interest rate will end the year at 4.25%.

  • What is the projected interest rate for the end of 2025 according to deoe?

    -deoe projects that by the end of 2025, the central bank's Benchmark interest rate will be reduced to 2.75%.

  • What financial relief is anticipated for households and businesses as a result of the interest rate cuts?

    -The interest rate cuts are expected to provide financial relief for many households and businesses managing variable rate debt payments.

  • What potential financial pain is expected despite the interest rate cuts?

    -Despite the interest rate cuts, a fresh wave of financial pain is expected as households with ultra-low interest rate mortgages secured during the pandemic face renewal at higher rates.

  • What group of Canadians is particularly at risk of facing higher interest costs?

    -Canadian mortgage holders who benefited from rate reductions during the pandemic are at risk of facing much higher interest costs as they renegotiate their mortgages.

  • What are the pain points on the horizon for Canada's economy according to deoe?

    -Weak business investment and Canada's productivity problem are identified as pain points that pose risks to Canada's long-term economic resilience.

  • What is the expected impact of higher interest costs on economic growth next year?

    -Higher interest costs, particularly for those renegotiating mortgages, are expected to weigh on economic growth next year.

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Soft LandingInflationInterest RatesEconomic OutlookCanada EconomyMortgage RenewalsFinancial PainBusiness InvestmentProductivityEconomic Resilience
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