In our latest June 2023 economic outlook, we observe that the Canadian economy has proven surprisingly resilient as strong population growth, tight labour markets, high commodity prices and the delayed impact of rising interest rates have all helped to sustain development. While these factors have set the stage for a period of relative economic calm heading into the summer, we also observe signs of slowing growth emerging on several fronts.
In the first quarter of 2023, real consumer spending increased by an eye-popping 5.7%. That was great news, but a less attention-grabbing number from the GDP report was that real household incomes fell by 6.5% in the first quarter. Overall, real consumer spending is expected to increase by 2.2% this year.
With global economic growth holding up through the start of 2023, exports have rebounded and are on track to perform better this year than we had previously forecasted. With a more modest investment and household spending outlook, imports are expected to decline 0.1% this year with exports projected to increase 5.4% resulting in net trade making a significant contribution to GDP in 2023.
The improved outlook we are seeing nationally this year has translated into a better outlook for provincial economies. The greatest gains have been in the Prairie provinces due to the strong natural resources sector and overall population growth. Softer gains are expected out east and in BC while Quebec and Ontario are expected to grow at a pace closer to the Canadian average.
- There will be a period of relative economic calm heading into the summer, however we are to expect a mild and short-lived recession in the second half of the year.
- We are anticipating that the Bank of Canada will hike interest rates to 5% to reinforce the message that they remain laser-focused on returning inflation to its 2% target.
- Based on the budgets delivered earlier this year, we predict that we will see little economic support from fiscal policy in the near-term, with real government spending expected to grow at about 1% per year over the 2023 to 2025 timeframe.
- We expect real business investment growth to moderate over the next two years, posting a gain of 1.6% this year and 1.5% next year.
Our firm’s latest quarterly economic update offers insights on the trends and events that are shaping Canadian and international economies. We encourage you to read it, share it and reach out to Trevin Stratton, National Leader and Partner, Economic Advisory, Deloitte Canada, with any questions.
This story was provided by Deloitte Canada for commercial purposes.