Economists have been planning for the possibility of recession in 2024 — technical or otherwise — for months. But some on the outlook panel suggested the gloomier scenarios may be overdone and that Canada might avoid a recession altogether. “We’re reasonably optimistic that we avoid a recession, in the traditional sense of the word,” panelist Jean-François Perrault said, adding that while there’s no question the economy has slowed, households are hanging in there. That provides some comfort that some of the worst potential outcomes won’t materialize.
Dennis Mitchell said that North American stock markets are reflecting that more optimistic scenario in which a hard landing is avoided. The Toronto Stock Exchange and the S&P500 are trading at levels that are “certainly not recession multiples,” Mitchell said, noting they are currently pricing in a healthy number of rate cuts. Earnings growth expectations in the U.S. are also around 11 to 12 per cent, levels not indicative at all of a potential recession, raising the possibility of a correction if the economic picture darkens.
Amanda Lang also noted that stock markets appear to be disconnected from the economy and may be overshooting to the upside. “When the S&P is forecasting profit growth of 11 per cent, the underlying assumption is economic growth of five per cent,” she explained. That’s a far cry from recent readings of flat GDP growth.
While the economy might skirt a recession, it will have to overcome a wave of mortgage refinancings that will pick up dramatically in 2024. Mitchell said Canada will see more mortgage refinancing for both fixed rate and variable rate mortgages, which will eventually put downward pressure on household spending and as a result, GDP growth —
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