Canadian mortgage renewals will weigh on economic growth: Deloitte

Summary

The 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.