The slowing economy, interest rate uncertainty and geopolitical tumult were all high on the agenda at the 47th annual outlook luncheon hosted by The National Post, Financial Post and the Canadian Club of Toronto at the Royal York Hotel on Jan. 10. This year’s panel of experts, who were asked to unpack the issues likely to make waves in 2024, included Jean-François Perrault, senior vice-president and chief economist at Scotiabank; Amanda Lang, host of Bell Media’s Taking Stock; Dennis Mitchell, chief executive offcier and chief investment officer of Starlight Capital; and National Post columnist Sabrina Maddeaux. Here are some of the highlights from their discussion about the year ahead.

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Recession or no recession?

Economists have been planning for the possibility of recession in 2024 — technical or otherwise — for months. But some on the outlook panel suggested the gloomier scenarios may be overdone and that Canada might avoid a recession altogether. “We’re reasonably optimistic that we avoid a recession, in the traditional sense of the word,” panelist Jean-François Perrault said, adding that while there’s no question the economy has slowed, households are hanging in there. That provides some comfort that some of the worst potential outcomes won’t materialize.

Dennis Mitchell said that North American stock markets are reflecting that more optimistic scenario in which a hard landing is avoided. The Toronto Stock Exchange and the S&P500 are trading at levels that are “certainly not recession multiples,” Mitchell said, noting they are currently pricing in a healthy number of rate cuts. Earnings growth expectations in the U.S. are also around 11 to 12 per cent, levels not indicative at all of a potential recession, raising the possibility of a correction if the economic picture darkens.

Amanda Lang also noted that stock markets appear to be disconnected from the economy and may be overshooting to the upside. “When the S&P is forecasting profit growth of 11 per cent, the underlying assumption is economic growth of five per cent,” she explained. That’s a far cry from recent readings of flat GDP growth.

The mortgage cliff is coming, housing affordability is not

While the economy might skirt a recession, it will have to overcome a wave of mortgage refinancings that will pick up dramatically in 2024. Mitchell said Canada will see more mortgage refinancing for both fixed rate and variable rate mortgages, which will eventually put downward pressure on household spending and as a result, GDP growth — unless wages keep up.

“(The mortgage cliff) is real. It’s in the data,” Lang said, adding that banks know exactly what is happening.

Perrault, however, said a study on mortgage renewals the Bank of Canada published last month suggested the cliff may not be such a big deal after all, given the resilience of the Canadian consumer. “It’s easy to overplay how worrisome this kind of renewal wave will be,” he added.

When it came to affordability, Sabrina Maddeaux said government intervention is often the problem. “Mostly they need to get out of the way,” she said, pointing to restrictive zoning across the country that basically makes a lot of housing impossible, contributing to supply shortages.

Maddeaux said growing immigration in Canada, which she described as “completely unsustainable” is having also effect on housing affordability.

“We can’t only be talking about supply, we also have to talk about demand,” she said, adding that this is particularly true when it comes to uncapped international student visas.

On a more fundamental level, Lang and Mitchell disagreed on the right lens through which to view Canada’s housing challenges. Mitchell described housing as “a commodity, like anything else,” noting that other commodities like oil and copper are also subject to the laws of supply and demand and thus to being “unaffordable” at times.

Lang disagreed. “Housing is a basic human right,” she said, and thus shouldn’t be treated like other commodities. “A roof over your head is a basic human right.”

Counting on interest rate cuts

Closely tied to the question about recession is whether the Bank of Canada will cut interest rates in 2024, and if so when and how far?

While Perrault said Scotiabank is of the view that rates will get cut in the second part of this year, he said it wasn’t outside the realm of possibility that Tiff Macklem and the central bank could be forced to hike at some point between now and the summer.

With core measures of inflation stuck at the three-and-a-half per cent range, and strong wage gains being generated in labour markets, there’s a chance the dragon has not been slayed after all.

“It’s not inconceivable at all,” he said. “And he’s been very clear about the fact that he might need to do this.”

Of geopolitics and U.S. politics

With two major wars underway and the prospect of a tumultuous U.S. election at the end of the year, international affairs loom large for 2024.

Maddeaux said she doesn’t see the Israel’s war against Hamas ending anytime soon.

“At least in the first half of the year, Israel has made it very clear that they plan to defend themselves and that they feel the need to eradicate Hamas. So that will continue to play out,” she said.

While wars like the conflict in Gaza and Russia’s invasion of Ukraine have a human toll and disrupt supply chains, Perrault said the impact from the upcoming U.S. election will have the biggest impact on Canada’s economic well-being.

A win by former president Donald Trump would be a “much more meaningful disrupter of the global economy” than whatever happens in those wars, he said.

“That effectively is a big geopolitical shock.”

• Email: dpaglinawan@postmedia.com

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