OTTAWA — Business headlines for 2023 focused on the housing crisis and the fight against inflation, while the job market turned out to be stronger than expected.
OTTAWA — Business headlines for 2023 focused on the housing crisis and the fight against inflation, while the job market turned out to be stronger than expected.
Housing and the cost of living, as well as central banks, will remain top of mind in 2024. Economists expect a shift in interest rate cuts as the economy slows further.
To help households and businesses weather a difficult economic environment, here are five things to watch for Canadian business in 2024.
inflation and interest rates
Inflation is well away from its high levels in 2022, but has yet to return to the Bank of Canada’s 2% target.
The central bank’s key interest rate has remained unchanged at 5% since July. Inflation has fluctuated somewhat in the second half of the year, but reached an annual rate of 3.1% in November for the second consecutive month.
Economists expect inflation to continue to slow, but the Bank of Canada continues to stress that it is prepared to raise rates again if necessary.
Benjamin Tal, deputy chief economist at CIBC, said that while inflation is expected to slow in 2023, service costs have proven to “remain higher” than expected. For 2024, he said rising interest rates would be a big hit.
“There is a tug of war between economic slowdown and inflation, and I think slowdown will win this tug of war,” Tull said.
This should make it easier for the Bank of Canada to start cutting interest rates in 2024.
But Tal expects central banks will keep people guessing until the last moment.
“I think deep down they know they’re not going to raise rates again, but they’re not telling us that,” Tull said.
housing
The spring real estate market will be a hot one this year for observers looking to gauge buyer intent.
Canada’s housing market cooled down in 2023 due in part to rising mortgage interest rates, but demand remained steady due to population growth. Politicians at all levels of government are facing pressure to do something about housing costs.
The report by RBC Assistant Chief Economist Robert Hogue and Researcher Ben Richardson says lower interest rates in the second half of this year will improve affordability while the government addresses supply gaps and reduces barriers to new home construction. I expect it to be helpful, but it’s not possible. many.
“With the bar to homeownership so high in many parts of the country, rental options will gain prominence,” Hogue and Richardson wrote.
“We expect more rental supply to come to market over the next year, driven by higher rents and a variety of incentives to encourage construction.”
Still, they say that’s likely not enough.
In its forecast for this year, the Canadian Real Estate Association said it expects home sales to be down 9.8 per cent compared to 2022, before rebounding by 9 per cent in 2024 as interest rates eventually trend downward.
The national average home price is expected to increase by 1.5% from 2023 to 2024 to $690,916.
market
The S&P/TSX Composite Stock Price Index is on track to record gains in 2023 after a bull market that began in late October. Markets gained momentum after Federal Reserve Chairman Jerome Powell discouraged traders from hoping for a rate cut in 2024.
Christina Hooper, chief global market strategist at Invesco, said 2023 had been an eventful and volatile year, but it would end on a high note.
“What we have seen so far is a growing recognition in the market that the disinflationary process is on track and that any significant and widespread recession is likely to be avoided,” he said. Ta.
But Mr Hooper said there would be a slowdown over the next six months as interest rates weigh on the economy before things improve in the second half of the year. With that in mind, he focuses on cyclical sectors such as consumer staples, materials and industrials.
“But I also have to note that I think technology has a lot of potential. I think technology will benefit from interest rate easing,” he said.
Lori Norman, investor specialist at Steady Hand Investment Funds, said the interest rate environment is likely to become more normalized in 2024. He also warned that while the Bank of Canada may cut interest rates next year, the era of near-zero interest rates will be tough. Won’t come back.
energy sector
The expanded Trans Mountain pipeline was expected to begin transporting crude oil in the new year, but the long-awaited project ended in 2023 and faced the possibility of further delays due to regulatory setbacks.
Trans Mountain is expected to increase Canada’s oil export capacity, and comes amid increased efforts to curb climate change and accelerate the transition to cleaner energy sources. The summer of 2023 saw wildfires across Canada, followed by a mild December across much of Canada, highlighting the effects of climate change.
The City of Ottawa will release draft regulations for a proposed national cap-and-trade system on greenhouse gas pollution by mid-2024, with final regulations expected in 2025. A draft framework released this month would require the oil and gas industry to reduce emissions by 2025. Achieve at least one-third by 2030 or purchase offset credits.
As 2023 draws to a close, oil prices remain near $70 per barrel, despite continued sanctions on Russian oil as the Ukraine and Israel-Hamas wars threaten stability in the Middle East. was.
Invesco’s Hooper said oil prices are well below their 2022 highs, when they traded at more than $100 a barrel.
“It’s very difficult to predict exactly where oil prices will go because there are so many different factors at play,” she says.
artificial intelligence
ChatGPT debuted in late 2022 and grew in popularity in 2023 as people experimented with generative artificial intelligence and glimpsed its potential applications at work and play.
Professor Terry Griffiths from Simon Fraser University’s Beedie School of Business said that while businesses and individuals are preoccupied with the technology, we are still in the early stages of AI adoption.
“Some organizations say, ‘I don’t have the courage to use these tools.’ Others say, ‘How can I use these tools? How can I build and customize my own?’ I’m thinking, “Is this true?” But it’s still in its early stages, so there’s a lot of uncertainty,” said Mr Griffiths, who holds the Keith Beedie Chair for Innovation and Entrepreneurship.
AI systems like ChatGPT are not without their pitfalls. Cybersecurity authorities are urging technology companies to ensure safeguards are in place to prevent misuse of AI systems.
Mr Griffiths said the technology had the potential to help solve real-world problems and workers should focus on the potential outcomes it could bring to their jobs.
She said that while it took years for personal computers to transform business, that is not the case when it comes to AI.
“This is a faster rollout of large-scale change, and it is incumbent upon all of us to help pull everyone along,” she said.
This report by The Canadian Press was first published Dec. 28, 2023.
Craig Wong, Canadian Press