In a recent interview with Financial Post’s Larysa Harapyn, Dawn Desjardins, chief economist at Deloitte Canada, discussed the economic forecast for the second half of the year and the path the Bank of Canada is expected to follow on interest rates.
Canada’s Economic Forecast for H2 2024
According to Desjardins, Canada’s economy is expected to continue growing in the second half of this year. However, she noted that growth will be slower than initially predicted due to various global and domestic factors. "We’re expecting a slowdown in economic growth in the second half of this year," she said.
Interest Rate Path: A Gradual Decline
Desjardins believes that the Bank of Canada will follow a gradual decline in interest rates in the coming months. She expects the policy rate to fall to 2.75% by mid-2025, which is lower than the current benchmark rate of 4.25%. "We’re expecting a gradual decline in interest rates over the next couple of years," she said.
Reasons for the Decline in Interest Rates
Desjardins cited several reasons why she expects interest rates to fall. Firstly, she noted that inflation is expected to continue trending downwards, which will allow the Bank of Canada to ease monetary policy without fear of reigniting inflationary pressures. Secondly, she pointed out that economic growth is slowing down, and a lower interest rate environment can help stimulate growth.
A Pause in January, Then a Gradual Decline
When asked about the implications of recent jobs data on interest rates, Desjardins said that while the numbers were weaker than expected, they did not change her outlook for interest rates. "We’re expecting a pause in the Bank of Canada’s tightening cycle in January," she said. However, she added that this would be followed by a gradual decline in interest rates.
History Foreshadowing the Worst of Times for Markets
Desjardins also touched on the topic of market volatility and how history is repeating itself. "We’re seeing similar patterns to 2008, when markets were hit hard due to a combination of global and domestic factors," she said.
A Cautionary Note: Economic Force and Annexation
In response to a question about the potential implications of Trump’s use of economic force to try and annex Canada, Desjardins emphasized that such scenarios are highly speculative. "While there have been some tensions between the US and Canada in recent times, we do not believe that economic force will be used as a means to annex our country," she said.
Bundled Pricing: A New Reality for Mortgage Rates
When asked about bundled pricing on mortgage rates, Desjardins noted that this trend is becoming increasingly prevalent. "We’re seeing more lenders offer bundled pricing, which can make it challenging for borrowers to compare and choose the best rate," she said.
Conclusion
In conclusion, Deloitte Canada’s chief economist Dawn Desjardins expects interest rates to fall to 2.75% by mid-2025 due to a combination of factors including slower economic growth, lower inflation, and a pause in the Bank of Canada’s tightening cycle. While there are risks associated with market volatility and global uncertainty, Desjardins remains cautiously optimistic about Canada’s economic prospects.
Additional Resources:
- Deloitte Canada’s Economic Outlook for 2024
- The Impact of Interest Rates on Canadian Economy
- A Guide to Bundled Pricing in Mortgage Rates
About the Author:
Dawn Desjardins is the chief economist at Deloitte Canada. She has over two decades of experience in economics and financial markets, with a focus on monetary policy and interest rates.
Note:
The views expressed by Dawn Desjardins are her own and do not necessarily reflect those of Deloitte or its affiliates.
Sources:
- Financial Post
- Deloitte Canada
- Bank of Canada