‘Sluggish’ Canadian Economy Foreseen Through First Quarter: Business Economist

A truck moves past stacked shipping containers at the Port of Montreal in Montreal, Quebec, on May 17, 2021. (Christinne Muschi/Reuters)

The Canadian economy is poised to remain sluggish in the first quarter of 2024, following a period of stagnation in the last quarter of 2023, according to the latest edition of the Main Street Quarterly report released by the Canadian Federation of Independent Business (CFIB).

“A real recovery for the small business sector should arrive much later given the enduring poor business environment,” wrote CFIB’s Chief Economist Simon Gaudreault in a Jan. 23 forecast.

The CFIB, in collaboration with economic consulting firm AppEco, anticipates that the Canadian economy, which contracted by 0.2 percent in Q4 of 2023, is projected to experience a growth of 0.5 percent in Q1 2024. The Canadian economy grew 0.8 percent in the first quarter of 2023.

The Consumer Price Index (CPI) inflation, including total inflation (3.2 percent) and CPI excluding food and energy (3.4 percent), showed signs of receding in Q4 of 2023. The forecast suggested a stable inflation rate in the first quarter of 2024.

The 2024 Food Price Report from the Agri-Food Analytics Lab at Dalhousie University forecasts a moderate rise in food prices for Canada. According to the lab’s recent press release, the expected increase in food prices is estimated to be between 2.5 and 4.5 percent. This rate of increase is notably less severe than the 5.9 percent hike experienced by consumers in 2023, as indicated in the report.

The CFIB report highlighted a small decline in the national job vacancy rate to 3.7 percent in Q4 of 2023, representing approximately 523,000 unfilled positions across the country.

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Most businesses are expected to continue raising prices in 2024, albeit at a lower average increase of 3.1 percent compared to previous years, the CFIB report said. The proportion of firms planning to hike prices is also expected to decrease.

The report highlighted a rapid decline in short-term and long-term optimism among manufacturing businesses, with increasing concerns about insufficient domestic and foreign demand.

Mr. Gaudreault indicated that while the economy experienced a mild technical recession, key macro indicators like sales and employment remain strong. He suggested that the contraction of the overall economy is likely to be short-lived, with a positive, but modest, growth trajectory expected in early 2024.

He noted that inflation is generally trending downward, hovering close to the Bank of Canada’s target range. Given the current economic slowdown and the delayed effects of previous interest rate hikes, Mr. Gaudreault advocated for a reconsideration of monetary policies to support economic recovery.

The report also addressed a significant drop in private investment plans, the lowest ever recorded, declining by 12 percent from Q3. This trend is attributed to low long-term confidence among small business owners, exacerbated by general uncertainty, cost pressures, and tax increases.

According to a recent report from the Canadian Taxpayers Federation (CTF), tax increases are on the horizon for Canadians in 2024, primarily due to the nation’s elevated inflation rates. The Canada Revenue Agency has declared adjustments based on a 4.7 percent inflation rate to determine the tax brackets for 2024.

This adjustment will result in heightened Canada Pension Plan and Employment Insurance contributions next year, affecting both employees and employers, as highlighted in the CTF’s annual tax report.