Canada’s economy continues to see notable growth supported by a still favorable labor market, rising asset prices and falling inflation, according to global credit ratings agency AM Best.
However, the agency notes that population growth has started to outpace job creation, which has resulted in wage growth slowing and the unemployment rate increasing throughout the country.
On top of this, housing affordability also remains a major concern, given the significant increase in home prices.
Looking back at 2023, Canada’s economic growth slowed significantly, to 1.1%, from an annual rate of 3.8% in 2o22, as the cumulative effects of higher interest rates, natural disasters, and a slowdown in global economic activity subdued growth for most of the year.
As for the first quarter of 2024, investment, consumption, and housing activity all witnessed an increase during the period, which prompted a growth rate of 1.7%, which was followed by a 2.1% growth rate in the second quarter of 2024.
AM Best stated that the primary driver of the growth was government spending, as consumer spending softened.
Whilst the Bank of Canada started lowering the policy rate in Q2’24, the lagged effect of monetary policy and a still relatively high interest rate will likely remain a drag on economic activity for most of 2024, the agency explained.
Nonetheless, the agency noted that growth is expected to pick up later in the year and into 2025, as borrowing costs ease, and private investment and household spending begin to pick up speed.
Moving forward, the rating agency also explained that immigration has played a significant role in Canada’s economy.
In fact, AM Best highlighted how immigration in the country has surged since the COVID-19 pandemic, with a net increase of more than one million temporary residents.
As well as this, population growth in 2023 has been estimated at around 3%, which is a multi-decade high.
However, population growth is expected to return to more historical rates over the near term, to 1.0% in 2025 and 2026, as the government has plans to reduce the number of worker visas and cap the number of international student permits, AM Best explained.
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