Research Briefing | Jun 28, 2024

Rocky summer for consumers in Canadian metros

With a substantial squeeze on consumers, Canadian metro economies face a challenging short term. Despite metro populations continuing to swell, we expect job growth across them to slow this year, and output per capita to continue falling. Additionally, the enduring impact of mortgage renewals at higher interest rates, high debt levels, and falling house prices, will sap consumer confidence. We forecast consumer spending to contract in several major metros this summer, including the largest—Toronto, before picking up in Q4. The consequence will be GDP growth of only 0.8% this year for the combined 35 metros, rising to 2.3% in 2025.

What you will learn:

  • This summer’s outlook is overcast, and the negative impact of mortgage renewals will last into 2025, but positive forces will gradually win out next year. These include metro job creation picking up again (aided by labour force growth) and supportive federal and provincial budget measures. Inflation will be near-target, allowing real incomes to grow faster and interest rates to be cut again. The upshot is that we forecast metro GDP growth of 2.3% in 2025, as Toronto and Vancouver (the largest metro economies) recover, and most major metros grow by more than 2%.
  • A key downside risk is higher-for-longer interest rates punishing overly indebted consumers, particularly in Ontario where debt-to-income ratios are most elevated. Already, consumer insolvencies are back above pre-Covid-19 levels nationwide, and higher in British Columbia and Alberta. Greater Toronto also faces an extended retooling shutdown of Ford’s car plant until 2027 that will lead to short-term job losses before long-term gains take effect.
  • On the plus side, rising visitor spending will benefit big cities as well as tourist-centric metros such as St. Catharines-Niagara, while the opening of the Trans Mountain pipeline will aid Albertan oil-focused metros. Higher US growth than anticipated could also give a much-needed boost to manufacturing hubs like Hamilton.
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