First National Financial LP®

Residential Market Commentary - Cautious economic optimism

  • First National Financial LP

Crystal-ball gazing to predict the economic future can be a murky business.  And some of the latest polling of Canadian economists shows just how opaque the view can be.  The Globe and Mail surveyed 15 prominent Canadian economists about what, they think, is going to happen.

There is general agreement that a slowdown is coming.  But when it came to the likelihood of a recession, expectations covered a very broad range from 25% at the low end to 90% at the high end.  One of those economists sees the country sliding into recession next year.  Some of the others are estimating longer timelines, stretching out to 24 months.  Certainly, a less than clear picture.

The Bank of Canada has lowered it forecast for economic growth significantly to 1.8% for next year.  Back in April the Bank was forecasting 3.2% growth.

Rampant inflation continues to be named as the culprit as the central bank pushes up interest rates in an effort to cool domestic demand.  Highly indebted Canadian households are particularly sensitive to rising rates.  That became apparent very quickly in the real estate market.

Demand for homes is easing, as illustrated by declining sales.  There is a growing inventory and price increases are returning to historical norms.  The moderation is largely welcome news; a hopeful sign of stability and predictability returning to the market.

Overall, the broad expectation from the economists is that the country can avoid a sustained economic contraction.  They point to rising commodity prices that tend to benefit the Canadian economy and high, COVID-era savings that could stave-off a collapse in consumer spending even in the face of higher prices.

There is cautious optimism that any recession will be relatively shallow and relatively short.