Canadian companies face acute draw back dangers amid financial slowdown

Canadian companies face a slew of draw back dangers because the economic system continues to gradual in 2024, with the labour market, greater rates of interest, and a weak world atmosphere posing vital challenges.

Dominique Lapointe (pictured), director of macro technique at Manulife Funding Administration, shared a sobering outlook on Canada’s economic system, noting that restoration will hinge on central financial institution easing on the mid-year level.

“We noticed some in 2023 and that slowdown will proceed,” Lapointe mentioned. “Within the labour market, there could be extra indicators of diminished hours in sure industries, possibly some layoffs in others.”

In his 2024 forecast, Lapointe famous that Canada’s degree of financial exercise has not elevated since Might of final yr and has declined virtually constantly since September 2022 on a per capita foundation.

Eight out of 20 industries contracted in October 2023 on a year-over-year foundation, with manufacturing and development – industries delicate to rates of interest – main the decline.

Canada’s economic system off to weak begin to 2024

Whereas elevated inflation and better rates of interest had been the important thing macroeconomic components that formed 2023, Manulife Funding Administration famous that Canadians’ job safety and uncertainty over mortgage renewals will mark 2024.

Lapointe’s forecast additionally highlighted the next factors:

• The financial downturn will proceed as Canadian customers pull again on spending
• Labour and housing dynamics will character the slowdown
• The economic system bottoming across the center of the yr hinges on central financial institution easing

Larger rates of interest, coupled with excessive inflation, have led customers to cut back their spending. Upcoming mortgage renewals will add strain on Canadians to put aside more cash, the report added.

“The draw back dangers are acute for Canada due to the best way our economic system depends on customers, who’ve began to tug again,” Lapointe mentioned.

On the labour entrance, whereas layoffs stayed on the regular fee, weaker demand for jobs might drive up the unemployment fee later within the yr. The development and monetary companies industries might be significantly susceptible to layoffs.

“Thus far, we’ve not seen any massive enhance in insolvencies; we have seen some throughout provinces, but it surely’s not one thing alarming. However are we going to see extra of that, and that snowball into sure localities and sure cities?” Lapointe mentioned.

Is there an excellent probability of Canada’s economic system rebounding in 2024?

The truth that the USA, Canada’s largest buying and selling associate, can also be heading for a slowdown provides to the headwinds that Canadian companies face at first of the brand new yr. However Lapointe pressured that the message is to not be alarmist however to current a transparent image so that companies can plan forward.

Regardless of the gloomy outlook, Lapointe additionally predicted an excellent probability for Canada’s economic system to make a wholesome rebound. One of the best-case situation is that supply-side pressures driving inflation calm down and companies overcome weak point within the labour market.

“I believe circumstances for inflation would have continued to maneuver in the best course [by mid-2024],” he instructed Insurance coverage Enterprise.

“Each the Fed and the Financial institution of Canada will take a look at these circumstances and attempt to keep away from a tougher touchdown, so a deeper recession, and progressively, progressively ease their coverage fee. So meaning for companies, simpler financing circumstances, you are going to be some enchancment on the worldwide image, particularly for manufacturing.”

Lapointe added that he sees a “20% to 25% probability” of this situation enjoying out.

“Issues can snowball from there, the place upon getting the exterior image bettering, financing circumstances are higher, after which you’ll be able to have a extra sustainable rebound within the second half,” he mentioned.

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