4Q 2024 Canada Economic Overview

Download VHP’s 4Q 2024 Canada Economic Overview here.

Leading Economic Indicators

Canada’s Leading Economic Index (LEI), published by the Conference Board of Canada, fell by 0.5% in November 2024, marking the third consecutive monthly decline. Over the six months ending November 2024, the LEI decreased by 2.1%, a stark contrast to the 1.8% growth seen in the previous six months, according to the Conference Board of Canada’s Monthly Economic Indicators Report. The economic outlook remains cautious, with forecasts indicating slower GDP growth of 0.8% for Q4 2024.

Monetary Policy and Inflation

The Bank of Canada maintained its policy interest rate at 5.0% during its December meeting, citing continued efforts to achieve the 2.0% inflation target, according to its December Monetary Policy Report. Inflation, as measured by the Consumer Price Index (CPI), increased by 0.4% in November, bringing the year-over-year rate to 3.4%. Core inflation, excluding food and energy, rose by 2.9% over the same period. Significant price pressures remain in food and housing.

Business and Consumer Confidence

The Business Barometer® Index, published by the Canadian Federation of Independent Business (CFIB), rose slightly to 50.2 in December but remains well below its historical average of 65, according to the CFIB Business Barometer report for December. Consumer confidence, tracked by the Conference Board of Canada’s Consumer Confidence Index, edged up to 88.7 in December, driven by marginal improvements in short-term economic expectations. However, concerns about inflation and rising debt burdens persist among households.

Labor Market

Canada added 23,000 jobs in November 2024, primarily in the healthcare and construction sectors, according to Statistics Canada's Labour Force Survey. The unemployment rate remained steady at 5.8%. Wage growth continued at 4.1% on a year-over-year basis, outpacing inflation. Youth unemployment (ages 15–24) ticked down slightly to 10.3%, reflecting increased seasonal hiring.

Housing Market

Housing starts dropped by 4.8% in November to an annualized rate of 208,000 units, reflecting tightening credit conditions. Existing home sales fell by 6.3% compared to October, with average national prices declining 2.1% month-over-month. The Canada Mortgage and Housing Corporation (CMHC) reported a 12% year-over-year increase in rental prices, with major urban centers experiencing the steepest hikes.

Manufacturing and Services Sectors

The Ivey Purchasing Managers Index (PMI) dipped to 48.3 in November, indicating a contraction in overall economic activity. The manufacturing sub-index fell to 45.7, driven by weakened export demand. Conversely, the services sector showed resilience, with the PMI for services rising to 53.2, reflecting steady growth in healthcare and professional services.

Trade and Retail Sales

According to Statistics Canada's trade balance report, Canada’s trade surplus narrowed to CAD 1.1 billion in October as exports declined by 2.3%, led by lower energy and automotive shipments. Also, per Statistics Canada’s Retail Trade report, retail sales increased by 0.5% in November, with e-commerce growing 6.4% year-over-year. Notable gains were seen in grocery and general merchandise categories, offsetting declines in automotive and furniture sales.

Oil and Gas Sectors

According to Statistics Canada's Energy Report, crude oil prices fell 4.5% in December to close at CAD 75.30 per barrel, pressured by concerns over global demand. Year-over-year, crude oil prices were down 8.3%. Year-over-year, natural gas prices declined 2.8%, driven by mild weather conditions.

Mining Sector

According to Statistics Canada's November Mining Output Report, the mining sector saw a moderate increase in output. Higher production of potash (up 3.8% year-over-year) and nickel (up 4.5% year-over-year) contributed to the gains, while coal mining declined by 2.1% over the same period. Exports of precious metals remained steady, reflecting stable global demand amid uncertain economic conditions.

Forestry Sector

According to Statistics Canada's Forestry Industry Performance Report, the forestry sector experienced mixed results in 2024. Softwood lumber exports to the United States were up 4.2% year-over-year, benefiting from a temporary easing of tariffs. However, domestic demand for wood products declined by 3.5% due to slowing residential construction. Forestry producers also faced challenges from higher transportation costs, which rose by 6.8% year-over-year, and ongoing labor shortages impacting operational efficiency.

Equity Markets

The S&P/TSX Composite Index ended December up 3.2%, buoyed by gains in energy and financials. However, the index remains down 8.4% year-to-date. Volatility, as measured by the Canadian Volatility Index (VIXC), averaged 21.7 in December, reflecting continued investor caution.

Key Challenges and Opportunities

Despite headwinds from inflation, high interest rates, and global economic uncertainties, opportunities exist in Canada’s renewable energy and technology sectors. The federal government’s CAD 10 billion Green Investment Fund, announced in November, aims to bolster clean energy initiatives and create new jobs in 2025 and beyond.

Outlook for 2025

Canada’s economy is expected to grow modestly by 1.2% in 2025, with inflation gradually subsiding to 2.5% by mid-year. Policymakers remain focused on fostering stability while addressing structural challenges in housing affordability and labor shortages. Businesses and households alike should prepare for a prolonged period of economic adjustment.

 Sources:

1.       Conference Board of Canada, Monthly Economic Indicators Report, November 2024

2.       Bank of Canada, Monetary Policy Report, December 2024

3.       Canadian Federation of Independent Business (CFIB), Business Barometer®, December 2024

4.       Statistics Canada, Labour Force Survey, November 2024

5.       Canada Mortgage and Housing Corporation (CMHC), Rental Market Report, 2024 Q4 Report

6.       Ivey Business School, Ivey Purchasing Managers Index (PMI), November 2024

7.       Statistics Canada, International Trade Monthly Report, October 2024

8.       Statistics Canada, Retail Trade Report, November 2024

9.       S&P Dow Jones Indices, S&P/TSX Composite Index

10.    Statistics Canada, Energy Report, December 2024

11.    Statistics Canada, Mining Production Report, November 2024

12.    Statistics Canada, Forestry Industry Performance Report, 2024 Annual Report

13.    Government of Canada, Green Investment Fund Announcement, November 2024 Announcement