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Housing rebound, population growth push economic downturn to 2024: Desjardins

However, expectations for which provinces will see the most significant downturn are unchanged

Toronto home buyers that snapped up a property last month paid more on average than they did a year ago but less than they would have if they closed the deal in May, the Toronto Regional Real Estate Board said Thursday. A real estate sign is displayed in front of a house in the Riverdale area of Toronto on Wednesday, September 29, 2021. THE CANADIAN PRESS/Evan Buhler
A rebound in the housing market, labour shortages and skyrocketing population levels have helped boost economic growth this year, pushing the prospect of a downturn to 2024, a new Desjardins report says. (THE CANADIAN PRESS/Evan Buhler) (The Canadian Press)

A rebound in the housing market, labour shortages and skyrocketing population levels have helped boost economic growth in Canada this year, pushing the prospect of a downturn to 2024, a new Desjardins report says.

Desjardins principal economists Marc Desormeaux and Hélène Bégin updated their provincial outlook on Tuesday, delaying the timing for an economic slowdown to 2024 as the economy remains resilient in the wake of rising interest rates. The downturn timeline revision is due to the strength of housing market rebounds, particularly in Ontario and B.C., as well as "acute labour shortages and skyrocketing population growth" across all provinces.

"Yet while these developments help the 2023 growth arithmetic, they don't rule out a downturn altogether — they just delay it until 2024," the economists wrote in the report, adding that falling home sales in Toronto and Vancouver after the Bank of Canada resumed its monetary tightening campaign is a sign that momentum is slowing.

"Monetary policy works with a lag, and all regions should increasingly feel the dampening impacts of sharply higher interest rates in the coming months."

Uneven effects

While the timing of the slowdown has been pushed back, the expectations for which provinces will see the most significant downturn remain unchanged. The pending downturn will not play out equally across the country, with the economists noting that housing-exposed provinces, namely Ontario and B.C., will see more significant slowdowns. Real GDP growth in 2024 is expected to fall to 0.1 per cent in Ontario, and 0.2 per cent in B.C.

"Meanwhile, Alberta and Saskatchewan remain less vulnerable to these effects and should generally benefit from solid commodity prices and production gains," the economists wrote. Alberta's real GDP in 2024 is expected to be 1 per cent, and Saskatchewan's at 0.9 per cent. Newfoundland and Labrador, another province where economic prospects are largely tied to the oil and gas sector, is expected to post real GDP growth of 1.1 per cent in 2024.

The report also notes that population growth "has been the proverbial rising tide listing all provincial growth boats so far in 2023." The economists expect that trend to continue, as long as the federal government remains focused on boosting immigration levels. Ottawa has set a target of 465,000 new permanent residents in 2023, 485,000 in 2024, and 500,000 in 2025.

"Persistently strong population growth will play a role in stimulating demand for goods and services," the economists wrote.

Still, population growth could play out unevenly when it comes to the impact on provincial growth prospects. The economists say Ontario and B.C. are welcoming record numbers of non-permanent residents, "but that could change if temporary foreign worker admissions fall in response to a slowing economy."

"By contrast, headcount gains look more durable in Alberta and the Maritimes," the report said.

"Recent population growth in these regions has come from non-permanent residents, immigration and interprovincial migration, partly as a result of their relatively affordable home prices."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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