The Market Participants Survey for the second quarter of 2024, conducted by the Bank of Canada from June 19 to 28, 2024, gathered insights from around 30 financial market participants on Canada’s economic conditions. Market participants include banks, pension funds, insurers, and other organizations actively involved in financial markets.
Economic Growth and Risks
Survey respondents forecast Canada’s real GDP growth to have a median projection of 1.4% by the end of 2024, with the 25th and 75th percentiles at 0.9% and 1.7% respectively. For the end of 2025, GDP growth is expected to have a median of 2.0%, with the 25th percentile at 1.8% and the 75th percentile at 2.2%. These projections show somewhat positive outlooks for modest economic growth over the next two years.
The survey asked respondents about what upside and downside risks to their growth outlook that they expected.
Upside Risks
The primary factors suggested that could bolster economic growth include a strong housing market (68% of respondents), looser monetary policy (56%), and higher commodity prices (44%), indicating these elements are seen as potential catalysts for better economic performance.
Downside Risks
Conversely, the significant risks to economic growth that were reported include a weaker housing market (60%), increased geopolitical risks (48%), and a decrease in purchasing power (40%).
Inflation and Monetary Policy
CPI Inflation
Expectations for annual total CPI (Consumer Price Index) inflation in Canada for the end of 2024 have a median of 2.3%, with the 25th percentile at 2.2% and the 75th percentile at 2.5%. By the end of 2025, the inflation rate is projected to have a median of 2.1%, with the 25th percentile at 2.0% and the 75th percentile at 2.2%.
Policy Interest Rates
The Bank of Canada’s policy interest rates are projected to decline gradually over the coming years. For the remainder of 2024, the rates are expected to have medians of 4.50% in July and September, decreasing to 4.25% in October, and 4.00% in December.
For 2025, rates are expected to have medians decreasing from 4.00% in January to 3.00% by the fourth quarter. By the first quarter of 2026, the median rate is expected to be 3.00%. Survey participants generally view the risks around these forecasts as balanced, with 40% considering the risks skewed towards higher rates, 20% towards lower rates, and 40% seeing balanced risks.
Overall Economic Sentiment
Output Gap
A significant majority of respondents (79.2%) believe Canada is currently experiencing a negative output gap, meaning the current GDP is below potential output levels. Only 8.3% of respondents perceive a positive output gap, while 12.5% see no gap.
Recession Probability
According to the survey responses, the probability of Canada entering a recession within the next 24 months remains a concern. Median estimates for the likelihood of a recession are 22.5% in the next 0 to 6 months, increasing to 30% in the next 6 to 12 months, remaining at 30% in the next 12 to 18 months, and then decreasing to 20% in the next 18 to 24 months.
For further details and responses on other key economic indicators, see the Bank of Canada’s Market Participants Survey results.
