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Expect 2024 downturn followed by a rate-cut rebound

Economists are expressing concerns about Canada's economic outlook in 2024, with many anticipating a downturn in the first half of the year followed by a potential rebound later on, contingent on the Bank of Canada's decision to cut interest rates.

Recession Outlook

Anticipation of a recession loomed large in 2023, but resilient economic data tempered those fears. Despite the Bank of Canada's aggressive interest rate hikes to curb inflation, many economists now suggest that a recession might already be underway, though its impact may not extend significantly into 2024.

RBC economist Carrie Freestone predicts a contraction in the real GDP for Q4 2023, marking a potential recession. However, she expects the downturn to be contained within the latter half of 2023, with a gradual rebound throughout 2024.

James Orlando from TD Economics emphasizes elevated risks due to limited economic flexibility amidst higher interest rates. CIBC's Benjamin Tal agrees, pointing out that, on a per capita basis, Canada is already in a recession.

2024 Performance

Economists foresee a "tale of two halves" for 2024. The initial months may be sluggish, possibly even recessionary, while the latter part holds promise for improvement. Experts believe the economy will gain momentum as interest rates start to decline.

Rate Cut Outlook

The key to unlocking the rebound lies in the hands of the Bank of Canada. Freestone and others predict a split year for 2024, with economic weakness persisting until mid-year when interest rate cuts are expected. RBC Economics projects a one percent drop in Canada's overnight lending rate throughout the year.

Economists surveyed by Bloomberg share a similar sentiment, estimating a gradual decline in the Bank of Canada's benchmark interest rate from five percent to four percent by the end of 2024. The potential cuts are anticipated to provide relief to consumers facing increased debt servicing costs.

Population Growth

Canada's positive GDP growth is buoyed by robust population growth from immigration, according to Orlando. He notes that each newcomer contributes to the economy, preventing a severe erosion of demand. Freestone echoes this sentiment, emphasizing the insulation provided by population growth against economic downturns.


Inflation, a concern throughout 2023, is expected to show signs of easing in 2024. Orlando predicts a shift towards the Bank of Canada's two percent target, particularly in the headline index. Core inflation, excluding food and energy prices, may take longer to decrease, remaining sticky throughout the first half of 2024.

Freestone anticipates a slowdown in inflation throughout the year, citing a gradual move toward the middle of the target range. Supply chain disruptions, which fueled inflation in the past, may now act as a force for disinflation, according to Tal.

As Canadians brace for economic fluctuations, the consensus among economists is that while challenges persist in the short term, 2024 may bring relief with careful navigation and responsive policies.