Canadian recession imminent and could last through the first half of 2024: Desjardins

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Despite Canada’s economy outperforming expectations over the last few quarters, signs are starting to suggest a slowdown is on the horizon, according to a report from Desjardins.

“Everything from international trade and housing to real GDP and core CPI inflation have started to trend lower, suggesting that rate hikes by the Bank of Canada are having their intended impact,” wrote the report’s authors.

As such, Desjardins is calling for the economy to enter into recession before the end of the year and continue into the first half of 2024.

“Falling goods consumption, residential investment and exports are likely to be the primary drivers of the weakness,” the economists continue. “The unemployment rate should track higher, pushing wage and income growth lower as a consequence.”

They expect the Bank of Canada to respond by cutting interest rates early next year, which they say should spur a return to growth by the second half of 2024.

$1.7B acquisition of Home Capital Group is now complete

Smith Financial Corporation announced today that it has completed its $1.7-billion acquisition of Home Capital Group.

The deal was first announced in November 2022 and was originally expected to close by mid-summer 2023.

The terms of the deal outlined that Smith Financial Corporation would acquire Home Capital at a purchase price of $44 per share, valuing the company at $1.7 billion.

In today’s announcement, Smith Corporation confirmed it will acquire the remaining outstanding shares for a total price of $44.28, with the premium a result of the deal closing nearly three months after the target closing date of May 20, 2023.

“For many reasons, including the strength of Home’s brand among mortgage brokers, deposit brokers and hundreds of thousands of customers across Canada, we are delighted to welcome this market-leading company and its hard-working team into the Smith Financial Corporation family,” said Stephen Smith, founder and CEO of Smith Financial Corporation.

“Home Capital is a strategic holding for us, and we will give our support to preserve, protect and advance Home’s place in the industry under its dedicated leadership,” he added. “We look forward to collaborating with all Home stakeholders as a committed long-term owner.”

Smith had previously called Home Capital a “strategic asset” thanks to its national presence, 36-year history and “trusted positions as a lender and deposit-taker.”

With Home Capital now officially operating as a Smith Financial Corporation company, Home’s common shares are expected to soon be de-listed from the Toronto Stock Exchange.

Canadians worried about rent and mortgage payments

A recent survey reveals growing anxiety among Canadians about their ability to afford both rent and mortgages.

More than half of Canadians (55%) who have a mortgage or rent a primary residence say they are worried about being able to make their monthly payment, according to the survey conducted by Leger.

That percentage is higher for those between the ages of 18 and 36 (66%), and those who live in Alberta (67%) and British Columbia (68%). Of those who say they have worried about making their housing payments, 16% said they worry frequently.

Canadians are nearly unanimous (95%) in believing that the rising rental costs and lack of affordable housing in the country is a serious problem, with 66% saying the situation is “very serious.”

Most respondents blame the federal government for the current situation (40%), while 32% say it’s the fault of provincial governments and 6% put the blame on municipal governments.

The survey, conducted by an independent research firm, highlights that a significant portion of the population is worried about meeting their housing expenses. Factors such as escalating home prices and rent rates have left citizens questioning their financial stability.

Government officials are under increasing pressure to address this issue, with calls for policies aimed at improving housing affordability across the nation. As Canadians voice their concerns, the housing affordability crisis remains a prominent topic of discussion.

High interest rates putting the brakes on consumer spending: StatCan

Personal consumption expenditures showing signs of weakening, suggesting the Bank of Canada’s rate hikes are putting the pinch on consumers’ pocketbooks.

Retail sales data for June eked out a nominal 0.1% month-over-month gain in June, but follows a soft reading in May. That puts sales for Q2 at -0.1%, well off the 2.6% annualized growth rate posted in the first quarter.

While some strength is still expected in the coming months, sales are expected to weaken beyond that as more disposable income gets diverted to debt servicing as mortgages renew at higher rates.

“Looking ahead, spending might still regain its footing with the help of government’s grocery rebates,” wrote Maria Solovieva of TD Economics.

“However, by demonstrating more resilience consumers will pay the price of higher cost of future borrowing (and spending),” she added. “The cumulative effect of 475 basis points in interest rate hikes is only starting to have a real impact on households’ budgets. As more mortgages roll over at higher rates, homeowners will divert more of their income towards debt servicing. This means that retail sales could be the next in line to roll over.”

Consumer confidence falls as personal finances weakening

Consumer confidence weakened slightly this week, led by falling sentiment over personal finances and the Canadian economy.

The Bloomberg Nanos Canadian Confidence Index (BNCCI) fell to 52.03 this week from 53.07. However, this remains above the 2023 low of 45.33 reached in January of this year.

“Of note, in the past four weeks the proportion of individuals who say their personal finances has improved has declined from 18.18 to 14.60,” noted Nik Nanos, Chief Data Scientist.

Sentiment also fell with regard to the Canadian economy and job security. While sentiment on real estate is down from last week, it remains higher compared to four weeks ago.

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