Deloitte Forecasts Moderate Economic Growth and Sub-3% Interest Rates for Next Year
Deloitte Canada has released its fall economic outlook, forecasting that the economy will grow moderately next year as interest rates are expected to fall below three percent by mid-2025. The central bank’s key interest rate is predicted to drop to 3.75% by the end of this year and a neutral rate of 2.75% by mid-next year.
Moderate Growth Expected Despite Higher Interest Rates
According to Dawn Desjardins, chief economist at Deloitte Canada, "We do think that we’re going to be in for a decent year next year." Despite the impact of higher borrowing costs on the economy, Desjardins believes that moderate growth is expected.
Forecast Aligns with Central Bank Projections
Desjardins stated that the forecast aligns with the central bank’s own projections. However, she noted that there are several factors that may pose increased risk to inflation, including climate change. "These are costly things that we’re going to have to deal with and will be embedded in prices," Desjardins said.
Global Backdrop Remains Challenging
The global backdrop continues to be challenging, with no clear ends to the wars in Ukraine and the Middle East, growing trade frictions, and an uncertain impact of the U.S. election on policy. Consumers and businesses alike are still facing a lot of uncertainty.
Interest Rate Cuts Expected to Support Economic Growth
Deloitte said that lower rates will ease the burden on the highly indebted household sector sufficiently to support a pickup in spending and a housing market recovery. After two years of subpar growth, Deloitte looks for the economy to hit its stride in 2025.
Shelter Prices Remain a Concern
Despite the easing of overall inflation, shelter prices – especially rent – remain too high for comfort. However, interest rate cuts are expected to rejuvenate construction activity, with home-building activity set to rise throughout 2025.
Modest Recovery Expected in Housing Market
While rate cuts should help stimulate the housing market, Deloitte said it expects the recovery to be modest amid poor affordability. Desjardins noted that without a significant boost to housing supply, the affordability issue is unlikely to subside.
Conclusion
In conclusion, Deloitte Canada’s fall economic outlook forecasts moderate growth for next year, with interest rates expected to fall below three percent by mid-2025. While there are several challenges on the horizon, including climate change and global uncertainty, lower rates are expected to support an improvement in confidence both from the consumer side as well as the business side.
Key Takeaways:
- Interest rates expected to drop to 3.75% by end of this year and 2.75% by mid-next year
- Moderate growth expected next year despite higher interest rates
- Climate change and global uncertainty pose risks to inflation
- Lower rates expected to support housing market recovery, but with modest growth
- Affordability issue unlikely to subside without significant boost to housing supply
