(Toronto) The Canadian economy should return to growth during the second half of the year, while interest rates could fall as early as this spring, according to the most recent forecasts from Deloitte Canada.

The firm forecasts stagnation in the first half of the year as the effects of rising interest rates weigh on the economy.

Deloitte Canada’s chief economist, Dawn Desjardins, believes that while the economy may technically be in recession with two or more quarters of negative gross domestic product (GDP) growth, Canada should not experience a significant decline in activity or a collapse in the job market, which generally accompany a real recession. “Our forecasts point to a fairly substantial recovery,” she says.

The Canadian economy contracted in the third quarter of 2023, falling 1.1% on an annualized basis, while growth remained stable for a third consecutive month in October. Early estimates from Statistics Canada for November suggest an increase of just 0.1% in real GDP for November.

The Bank of Canada kept its key rate at 5% in December, after tightening monetary policy aggressively to combat inflation.

Even though inflation was still at an uncomfortably high 3.1% in November, Deloitte believes it is unlikely the central bank will raise rates further.

Instead, the firm expects the central bank to begin cutting rates as soon as it has better visibility on the path toward its 2% inflation target, which is likely to happen in the spring.

However, Canadians should not expect, or even want, interest rates to return to pre-pandemic thresholds, adds Ms. Desjardins. “We were in a cycle following a financial crisis, where we had very, very low interest rates. It had sort of become the norm. »

The Bank of Canada’s key rate “should be at a level that allows the economy to grow at its potential rate, without fueling inflation,” underlines Ms. Desjardins. This threshold should be around 3%, she added, compared to 1.75% in 2019, before the pandemic.

The Deloitte report projects weak near-term job growth, offset by wage gains as workers continue to try to catch up with inflation. However, wage gains will begin to slow toward the end of 2024, at the same time that job market growth accelerates, the report says.