4 economic considerations for your investment strategy this spring

The gross domestic product (GDP) growth in Canada is hovering very close to zero — the very definition of a soft lending. However, when we look at GDP growth per capita — meaning when we look at growth relative to the size of Canada’s population — we’re clearly in negative territory or in a per capita recession. The good news is that while this may cause some volatility in the short term, overall economic activity is likely to start accelerating in the second half of 2024 and should be relatively strong in 2025.

Inflation in Canada stands at 2.86% as of March 2024, which remains above the Bank of Canada’s (BoC’s) 2% target rate. We believe inflation will continue to trend downward in the coming quarters given the disinflationary factors we’re observing. These include decelerating food inflation, improved supply chain conditions and normalizing wage inflation.

Given the slowing economy and the progress made on lowering inflation, it’s very likely that the BoC is done hiking rates. In the 2 most recent rate announcements in January and March, the BoC held the overnight rate at 5% Opens in a new window.. It’s likely Canadians will notice rate cuts beginning this year, potentially as early as summer. The easing in policy will be gradual and we expect the BoC’s overnight rate to fall from the current 5% to 2.75% by mid-2025. Consider talking to your advisor about how to find investment opportunities in the current economic environment (PDF, 3.1 MB) Opens in a new window..

As demand for housing slows due to higher for longer interest rates and corresponding stricter stress test modifications, we expect a buyers’ market with no buyers this spring Opens in a new window.. To understand where we are in the housing market, we first have to look at what happened during COVID-19 when housing prices skyrocketed and interest rates were lower. The current correction in the market is, in many ways, reallocation of activity over time.

As the BoC begins cutting interest rates, demand will start to recover, particularly in the second half of the year and into 2025, resulting in a rebound in home prices (PDF, 215 KB) Opens in a new window..

With increased globalization, events from distant regions across the globe can directly impact the economy and, in turn, your investment portfolio. From shipping costs to politics, world events can put a strain on the performance of your investment portfolio.

Overall, it’s important to avoid letting short-term events dictate long-term investment decisions. Talk to your advisor about how to best navigate the current economic environment to make sure you’re on the best path to achieve your financial goals.

At CIBC Private Wealth, we take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss these insights in more detail or have questions about your investment portfolio, get in touch with your advisor anytime.