The global economic growth backdrop has continued to slow as the lagged impact of aggressive central bank interest rate hikes build continue to build alongside a continued squeeze on household purchasing power from the earlier rise in food and energy prices. Commodity prices are still high but have have edged progressively lower.

The U.S. economy remains an outlier with strong GDP growth through Q3 2023. But households are running out of savings and ‘excess’ labour demand has evaporated with further declines in job openings expected to begin to push unemployment more significantly higher. We continue to expect the U.S. economy to soften in early 2024. GDP edged lower in Europe and was essentially unchanged in the UK over the summer.

Canada’s economy continues to soften as debt payments rise

Canada’s economy passed a tipping point some time ago. A surge in population propped up measures of total economic activity earlier in 2023 – each new arrival boosts both the productive capacity of the economy and consumer demand. But GDP fell 1.1% (annualized) in Q3 despite those tailwinds, and per-person output has now declined for five straight quarters. After-inflation, consumer expenditures per-capita fell to 1% below pre-pandemic levels in Q3.

Rising debt payments and higher fuel and grocery bills have left household purchasing power diminished. And labour markets are softening with employment no longer rising fast enough to absorb a rapidly growing available workforce. The unemployment rate has risen by 0.8 percentage points since April – a magnitude of increase that historically usually only comes in the early stages of an economic downturn. Job openings continue to retrench, down 30% year-over-year as of September.

Household savings are still very high, and that can act as a backstop in times of economic stress. But the cash stockpile is not evenly distributed across income cohorts and is increasingly unlikely to be spent in the near-term. Households typically save more (and spend less) when the outlook is uncertain and consumer confidence fell below the lows of the 2008/09 recession in November. And household savings may be higher in part to accumulate funds among households that will still see significant increases in mortgage payments, including a mortgage refinancing wave coming in 2025. The household saving rate rose to 5.1% in Q3 (still well-above the 2.1% pre-pandemic rate in 2019.)

Slowdown in domestic demand expected to ease as the BoC cuts rates

Consumer spending is expected to remain under pressure in the near-term as rising debt payments and higher food and energy prices continue to soak up purchasing power. Businesses have also been pulling back. Business investment on machinery and equipment fell 14.4% in Q3. For the first time since the pandemic, businesses tracked by the Canadian Federation of Independent Business ranked concerns about demand for their products as a larger factor limiting production/sales than labour shortages. Housing markets have looked wobbly with headwinds from higher interest rates being countered by high rates of population growth and limited supply of homes available.

Canadian labour shortages easing as demand slows

Line chart with 2 lines.
% of businesses listing factor limiting ability to increase sales/production
Source: CFIB, RBC Economics
The chart has 1 X axis displaying Time. Data ranges from 2019-01-01 00:00:00 to 2023-11-01 00:00:00.
The chart has 1 Y axis displaying values. Data ranges from 21.6 to 55.8.

Shortage of skilled labourInsufficient domestic demandJan ’19Jul ’19Jan ’20Jul ’20Jan ’21Jul ’21Jan ’22Jul ’22Jan ’23Jul ‘2310%20%30%40%50%60%

Source: CFIB, RBC Economics
End of interactive chart.

Central banks have done their job: additional hikes likely off the table

While the near-term economic outlook is not exactly rosy, the good news is that higher interest rates and slower growth are working to ease inflation pressures. The full impact of rate hikes to-date has yet to be felt, and downside remain if the slowdown in labour markets accelerates. Economic data to-date is still tracking consistent with a ‘mild’ downturn by historical standards.

And easing in the breadth of inflation pressures in both the U.S. and Canada combined with softer economic data has increased the odds that the U.S. Fed and the BoC will be pivoting to interest rate cuts in the year ahead. That won’t happen right away – central banks will be cautious about declaring victory over inflation too early. But we expect both the U.S. Fed and the BoC will be shifting to interest rate cuts in the first half of 2024.

Canadian per capita consumption is in-line with prior recessions

Line chart with 5 lines.
Household consumption (real) per capita index (100=recession peak)
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying Quarters since recession peak (Q=0 at recession peak).
The chart has 1 Y axis displaying values. Data ranges from 94.7 to 102.3.

Quarters since recession peak (Q=0 at recession peak)19811990200820232023F-1-2-3-40123456789101112949698100102104

End of interactive chart.

Economic outlook to brighten starting in the second half of next year

Once central banks are able to begin easing off the monetary policy brakes, we expect the economy to perk up over the second half of next year. The impact of higher interest rates will continue to ripple through the economy with long lags – see more on the expected impact of mortgage renewals on the household debt payments in 2025 below. But those challenges are likely manageable as long as labour markets are beginning to improve by then. We expect GDP growth will begin to pick up in the second half of 2024 and into 2025.

Central Banks to ease off the brakes in 2024

Line chart with 2 lines.
Source: Haver, RBC Economics
The chart has 1 X axis displaying Time. Data ranges from 2021-04-01 00:00:00 to 2024-12-01 00:00:00.
The chart has 1 Y axis displaying values. Data ranges from 0.25 to 5.5.

ForecastBoC overnight rateFed fund target (top of range)Jul ’21Jan ’22Jul ’22Jan ’23Jul ’23Jan ’24Jul ‘240%1%2%3%4%5%6%

End of interactive chart.

 

2025 mortgage renewal wave is large but manageable

Roughly 40% of the outstanding stock of mortgages will have already renewed at higher interest rates by the end of 2023.

 

Provincial Outlook

We expect minimal economic growth in Ontario (+0.2%), B.C. (+0.3%) and Quebec (+0.4%) in 2024 as households remain under heavy pressure from high interest rates and a soft US economy weighs on external trade. Though the Prairie provinces won’t be immune to the slowdown, an optimistic investment outlook should keep Alberta (+1.7%), Saskatchewan (+1.6%), and Manitoba (+1.2%) growing at a modest pace. Meantime, a resurgence in natural resource production and partial recovery in construction investment may be enough to lift growth in P.E.I. (+2.1%), Newfoundland and Labrador (+2.0%), and Nova Scotia (+1.2%) in 2024. A weaker trade outlook in New Brunswick (+0.9%), however, is likely to keep growth relatively muted in the year ahead.

Real GDP Growth

2023, %

Bar chart with 11 bars.
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from -2 to 2.2.
Chart annotations summary

ALTAPEIMANNBONTCANSASKNSBCQUENFL-2%-1%0%1%2%

2023, %
End of interactive chart.

2024, %

Bar chart with 11 bars.
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from 0.2 to 2.1.
Chart annotations summary

PEINFLALTASASKNSMANNBCANQUEBCONT-2%-1%0%1%2%

2024, %
End of interactive chart.

2025, %

Bar chart with 11 bars.
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from 1.8 to 2.5.
Chart annotations summary

ALTAPEISASKNFLNSONTCANQUEBCMANNB-2%-1%0%1%2%

2025, %
End of interactive chart.
Source: Statistics Canada, RBC Economics

BRITISH COLUMBIA – Spending and investment lull to continue

We expect many of the challenges that stunted economic growth in B.C. in 2023 to remain pressure points for the province in the year ahead. Though there’s no telling of what 2024 will bring insofar as natural disasters, high interest rates and strained affordability are poised to keep the spending and investment lull going for a little longer. And with a drop in net new projects, we don’t expect to see a big improvement to the province’s softening labour market either. This should keep B.C.’s overall economic growth at the back of the pack in 2024 (+0.3%).

Slowing economic activity stunts employment growth in B.C.

Bar chart with 11 bars.
Annual change in YTD (Jan – Nov) employment growth, %
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from 1.51 to 5.33.

BCSASKNFLMANQUECANONTNSNBALTAPEI0%1%2%3%4%5%6%

Slowing economic activity stunts employment growth in B.C.
Annual change in YTD (Jan – Nov) employment growth, %
Source: Statistics Canada, RBC Economics
End of interactive chart.

ALBERTA – Tailwinds moderating in 2024

Though tailwinds from commodity markets and strong population inflows are waning, Alberta is slated to keep its place near the top of our provincial growth ranking in 2024 (+1.7%). It’s relative affordability advantage and impressive growth streak continue to entice a record number of new migrants, keeping upward pressure on aggregate spending, investment, and employment growth. Despite the upside strong demographic trends bring to overall growth, a flourishing population, alone, won’t be enough to shield Alberta’s economy from moderating further in 2024.

Value of Alberta oil and gas exports recovering

Line chart with 58 data points.
Alberta exports: oil and gas extraction, billions of Canadian dollars
Source: Innovation, Science, and Economic Development Canada, RBC Economics
The chart has 1 X axis displaying Time. Data ranges from 2019-01-01 00:00:00 to 2023-10-01 00:00:00.
The chart has 1 Y axis displaying values. Data ranges from 2.4 to 14.39.

Jan ’19Jul ’19Jan ’20Jul ’20Jan ’21Jul ’21Jan ’22Jul ’22Jan ’23Jul ’23$0B$2B$4B$6B$8B$10B$12B$14B$16B

Value of Alberta oil and gas exports recovering

End of interactive chart.

SASKATCHEWAN – Stage set for 2024 rebound

After a tough year for crop production and fertilizer exports, better growth prospects are on the horizon for this provincial economy. Indeed, Saskatchewan is set to buck the weakening trend in 2024 as the outlook for potash improves and (hopefully) better weather supports a more favourable growing season. We see these tailwinds bringing economic growth up to 1.6% in 2024 – well ahead of the Canadian average.

Saskatchewan potash production trends down toward pre-pandemic levels

Line chart with 57 data points.
Potash production, millions of tonnes
Source: Saskatchewan Ministry of Energy and Resources, RBC Economics
The chart has 1 X axis displaying Time. Data ranges from 2019-01-01 00:00:00 to 2023-09-01 00:00:00.
The chart has 1 Y axis displaying values. Data ranges from 245.1 to 2032.2.

Jan ’19Jul ’19Jan ’20Jul ’20Jan ’21Jul ’21Jan ’22Jul ’22Jan ’23Jul ‘2305001000150020002500

Saskatchewan potash production trends down toward pre-pandemic levels
Potash production, millions of tonnes
Source: Saskatchewan Ministry of Energy and Resources, RBC Economics
End of interactive chart.

MANITOBA – Slowing its stride

This past summer’s drought in Manitoba turned out to be less detrimental to the province’s agricultural sector than we had anticipated. Significantly upgraded crop production estimates from Statistics Canada prompted us to upwardly revise our 2023 real GDP projection to 1.7% – a 0.3 percentage-point increase from our September outlook. Still, this represents a notable moderation from the 3.3% recorded in 2022. We expect the slowing trend to extend into 2024. As businesses and consumers keep a tight grip on their purse strings amid high costs, real GDP growth is poised to moderate further to 1.2%.

Manufacturing shipments hit inflection point

Line chart with 46 data points.
Manitoba manufacturing shipments, billions of dollars
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying Time. Data ranges from 2012-06-30 00:00:00 to 2023-09-30 00:00:00.
The chart has 1 Y axis displaying values. Data ranges from 4.035 to 6.693.

20142016201820202022$3B$4B$5B$6B$7B

Manufacturing shipments hit inflection point
Manitoba manufacturing shipments, billions of dollars
Source: Statistics Canada, RBC Economics
End of interactive chart.

ONTARIO – Gearing down

Though Ontario’s growth is expected to come in close to the Canadian average this year, a steep moderation is likely to bring it to the back of the pack in 2024. Not only will high interest rates continue to hamper housing market activity and spending next year, but slower growth in the U.S. is also poised to dampen the manufacturing outlook. Record investment in EV battery plants will partially offset the weakening trend, however, manufacturing developments in southwestern Ontario won’t be enough to fully counteract the broader softening. As such, we have real GDP growth in Ontario pegged at just 0.2% in 2024, down from 1.1% in 2023.

Ontario manufacturing shipments flatten

Bar chart with 11 bars.
Annual change in manufacturing shipments, %
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from 2.42 to 36.56.
Chart annotations summary

Q1-21Q2-21Q3-21Q4-21Q1-22Q2-22Q3-22Q4-22Q1-23Q2-23Q3-230%10%20%30%40%

Ontario manufacturing shipments flatten
Annual change in manufacturing shipments, %
Source: Statistics Canada, RBC Economics
End of interactive chart.

Quebec – Bruises to take longer to heal

The Quebec economy is heading into 2024 with plenty of bruises. The year that’s passed hasn’t been kind with massive wildfires, high interest rates, the sharp increase in the cost of living, and lately, large labour strikes weighing heavily on activity. Quebec, in fact, is one of only two provinces likely having fallen into a mild recession in 2023 (Newfoundland and Labrador, the other). We expect 2024 to be kinder, though just barely. And any noticeable improvement in the outlook might come only in the back half of the year once cuts in interest rates provide relief and trading partners turn their situation around. We project annual growth to remain sluggish overall, inching higher from 0.3% in 2023 to 0.4% in 2024.

Quebec’s economy is slowing down

Line chart with 80 data points.
GDP, Billions of chained 2012 $, seasonally adjusted and annualized
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying Time. Data ranges from 2017-01-01 00:00:00 to 2023-08-01 00:00:00.
The chart has 1 Y axis displaying values. Data ranges from 300.1 to 394.

2017201820192020202120222023275B300B325B350B375B400B

Quebec’s economy is slowing down
GDP, Billions of chained 2012 $, seasonally adjusted and annualized
Source: Statistics Canada, RBC Economics
End of interactive chart.

NEW BRUNSWICK – Weaker trade dims growth outlook

New Brunswick’s economy has geared down significantly from the pandemic recovery’s high point. Indeed, this provincial economy has already posted one of the steepest slowdowns in growth between 2021 (+5.3%) and 2022 (+1.1%) of all provinces. Though strong in-migration and relatively low debt burdens support a robust household sector, headwinds from a softening global economy are picking up and holding back provincial exports. As such, we’ve downgraded our 2023 forecast to 1.1% from 1.4%. We expect the provincial economy to decelerate further to 0.9% in 2024, making New Brunswick the only Maritime province to experience a further slowdown in the year ahead.

New Brunswick exports dwindle

Bar chart with 22 bars.
New Brunswick domestic exports, millions of Canadian dollars
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying Time. Data ranges from 2022-01-01 00:00:00 to 2023-10-01 00:00:00.
The chart has 1 Y axis displaying values. Data ranges from 1014.312 to 2036.641.

Jan ’22Apr ’22Jul ’22Oct ’22Jan ’23Apr ’23Jul ’23Oct ‘230M500M1000M1500M2000M2500M

End of interactive chart.

NOVA SCOTIA – Investment boost strengthens growth outlook

Recent data suggests Nova Scotia may be struggling more in 2023 than we initially thought. Deteriorating affordability has weakened the housing market, pushing year-to-date resales down in Nova Scotia more than any other province (+20% y/y). And though non-residential construction investment has been strong in 2023, softness on the residential side has been a drag on total construction investment. Manufacturing shipments have also come down as the province’s largest export markets brace for recession. All in all, we think growth will be quite a bit softer than our September forecast. At 0.8%, Nova Scotia’s economy is likely to trail behind the Canadian average in 2023 before making a modest rebound in 2024 (+1.2%).

Nova Scotia sees buyer enthusiasm fade

Bar chart with 11 bars.
Annual change in YTD (Jan – Oct) unit sales, %
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from -19.7 to -6.2.

NSNFLNBQUEONTCANALTAMANBCPEISASK-25%-20%-15%-10%-5%0%

Nova Scotia sees buyer enthusiasm fade
Annual change in YTD (Jan – Oct) unit sales, %
Source: Statistics Canada, RBC Economics
End of interactive chart.

PRINCE EDWARD ISLAND – Set to gather even more momentum

2024 is likely to be a slightly stronger year for P.E.I. Not only does robust population growth and easing inflation pressure support a robust outlook for household spending, but a ramp up in construction is also slated to contribute to overall growth. Though P.E.I. won’t be recovering from a particularly hard year, the province is likely to be one of three that buck the weakening trend in 2024. At 2.1%, our forecast calls for real GDP growth in P.E.I. to, once again, top all other provinces in the year ahead.

Wave of retirement to keep labour market tight in P.E.I.

Bar chart with 11 bars.
Annual change in YTD (Jan – Nov) retirees between 2022 and 2023, %
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying categories.
The chart has 1 Y axis displaying values. Data ranges from -12.1 to 20.2.
Chart annotations summary

MANONTSASKQUECANNFLNSALTABCNBPEI-20%-10%0%10%20%30%

Wave of retirement to keep labour market tight in P.E.I.
Annual change in YTD (Jan – Nov) retirees between 2022 and 2023, %
Source: Statistics Canada, RBC Economics


End of interactive chart.

NEWFOUNDLAND & LABRADOR – Energy sector to kickstart recovery

Alongside the oil production dip, a dimmer outlook for the province’s mining sector and construction investment are raising the odds that Newfoundland and Labrador’s economy will contract for a second consecutive year in 2023 (-2.0%). Better growth prospects, however, are likely on the horizon. As of November 2023, all four offshore oilfields were back into operation. A brighter outlook for the province’s key mining sector is also pencilled in for the back half of 2024 as a recovering global economy spur demand for commodities. Strength in the natural resources sector is raising the odds that Newfoundland and Labrador will be one of the few provinces to buck the weakening trend in 2024 with a growth rate of 2.0%.

Unemployment rate to linger around record-low

Bar chart with 50 bars.
Newfoundland & Labrador unemployment rate, %
Source: Statistics Canada, RBC Economics
The chart has 1 X axis displaying values. Data ranges from 1976 to 2025.
The chart has 1 Y axis displaying values. Data ranges from 9.9 to 20.2.

Forecast19801985199019952000200520102015202020250%5%10%15%20%25%

Unemployment rate to linger around record-low
Newfoundland & Labrador unemployment rate, %



End of interactive chart.

 

Detailed forecast tables:

 

Canada and United States forecast tables
Read Report

Provincial forecast tables
Read Report
Interest rates and Key FX rates
Read Report

 

About the AuthorsAs RBC Chief Economist, Craig Wright leads a team of economists providing economic, fixed income and foreign exchange research to RBC clients. Craig is a regular contributor to a number of RBC publications and is a key player in delivering economic analysis to clients and the media through the Economics Department’s regular economic briefings.

Nathan Janzen is an Assistant Chief Economist, leading the macroeconomic analysis group. His focus is on analysis and forecasting macroeconomic developments in Canada and the United States.

Robert Hogue is an Assistant Chief Economist, responsible for providing analysis and forecasts on the Canadian housing market and provincial economies.

Rachel Battaglia is an economist at RBC. She is a member of the Macro and Regional Analysis Group, providing analysis for the provincial macroeconomic outlook.

Carrie Freestone is an economist at RBC. She is a member of the macroeconomic analysis group and is responsible for examining key economic trends including consumer spending, labour markets, GDP, and inflation.

Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.