Our economic outlook for Canada

June 25, 2024

Our outlook for year-end 2024


Economic growth,
year over year

We expect below-trend growth in 2024 amid more potent monetary policy transmission than in the U.S. Canadian homeowners, with their greater use of variable-rate mortgages, have felt the effect of the higher interest rates of recent years. Canada’s debt-service ratio—debt payments as a percentage of after-tax household income—stood near a record 15% at the end of 2023.


Core inflation, year over year

The pace of core inflation has slowed in 2024 and fallen into the 1%–3% target range of the Bank of Canada (BOC). We foresee continued progress in the inflation fight this year amid below-trend growth and restrictive monetary policy. A weaker labor market and a resulting easing of wage pressures should slow price increases for services unrelated to shelter.


Monetary policy rate

Given progress in the inflation fight and below-trend economic growth, the BOC on June 5 became one of the first developed markets central banks to cut rates, decreasing its overnight rate target by 25 basis points, to 4.75%. We expect the BOC to be vigilant regarding prices but likely to cut its policy rate target by an additional 25–50 basis points this year.1


Unemployment rate

Canada’s unemployment rate has climbed from its record low of 4.8% in 2022 to within our year-end 2024 target range, and we expect it to hover within that range for the rest of the year. Wage growth has moderated to around 5% year over year but remains well above its prepandemic average of 2.25%.

What I’m watching

The effect of policy easing on below-trend growth

Canada’s economic growth, unlike that of the U.S., remains below its prepandemic trend. Restrictive monetary policy intended to fight inflation constrained activity, leaving Canadian GDP growth well below potential. However, with the BOC having started a policy-easing cycle, we anticipate that the output gap could remain around 4% at year-end 2024.

Vytas Maciulis

Vytas Maciulis,
Vanguard Economist

Notes: GDP is indexed to 100 in the fourth quarter of 2007 (not shown). The prepandemic trend line is based on data from 2015 through 2019. 

Sources: Vanguard calculations using data from Refinitiv as of March 31, 2024, and Vanguard forecasts thereafter. 

1 A basis point is one-hundredth of a percentage point.

Notes: All investing is subject to risk, including the possible loss of the money you invest. 

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