The Canadian economy has continued to underperform global peers. Declines in per-capita output in seven of the last eight quarters have left average income per person back at decade-ago levels and the unemployment rate rising more than in other advanced economies. <\/p>\n
Canada is not “officially” in a recession with a high rate of immigration increasing the numbers of consumers in the country, but per-capita gross domestic product and the unemployment rate are more representative of what individual households and workers are experiencing in the current economy, and on that basis, it certainly feels like one<\/a>.<\/p>\n The good news is inflation is slowing as the economy softens, and that has allowed the Bank of Canada to begin easing monetary policy with three straight 25 basis points cuts in the overnight rate since June. Interest rates are still at a high enough level to slow rather than aid economic growth. The lags between changes in market interest rates and actual household borrowing rates mean debt servicing costs will continue to rise\u2014particularly for households renewing fixed-rate mortgages that date back to the exceptionally low levels of rates during the pandemic. Still, we look for the BoC to continue pushing interest rates gradually lower, and that will help limit the size of the consumer payment shock and allow for a pickup in the economy in the second half of next year.<\/p>\n Globally, the economic backdrop has continued to gradually soften, but the pace has not yet shown signs of imminent collapse. GDP growth is still positive, led by emerging markets despite growth in China continuing to slow. In Europe, the German economy is suffering from a broadly weaker global manufacturing backdrop, but growth in the eurozone as a whole has held up thanks to stronger service sector activity boosting output in Spain and France. Commodity prices have pulled back but are still at high enough levels to support revenue flowing into Canada\u2019s natural resource-producing provinces.<\/p>\n Worries have increased more significantly in financial markets about the durability of the U.S. economic recovery. U.S. unemployment is still low, but it has been drifting gradually higher, and that, historically, doesn\u2019t happen outside of U.S. recessions. We think there are enough reasons to believe this time is \u201cdifferent,\u201d thanks to an unusual and exceptionally large U.S. government budget deficit that is keeping a floor under U.S. demand. The U.S. Federal Reserve will continue to lower interest rates against that backdrop. We expect a gradual and limited pace of cuts but, the Fed is clearly willing to do more should the economic backdrop prove softer than expected.<\/p>\nEmerging market demand keeps floor on commodity prices<\/h2>\n
U.S. economy continues to soften, not crumble<\/h2>\n