Odds of 2024 recession now even: Quebec finance minister

A recession would deprive Quebec of several billion dollars in revenue and trigger extra spending, Eric Girard said.

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A recession next year would deprive Quebec of several billion dollars in revenue while triggering higher-than-expected spending, finance minister Eric Girard said Friday.

Odds of a recession in Canada’s second-most populous province are now even, Girard said.

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In his fall economic update on Tuesday, gross domestic product in Quebec was expected to expand by 0.7 per cent next year, following a projected 0.6 per cent increase this year.

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As recently as March, Quebec was forecasting growth of 1.4 per cent for 2024.

“We are in stagnation now, very close to zero (per cent growth). We have as many chances of being slightly above zero as we have of being slightly under zero,” Girard said Friday at an event hosted by the Chamber of Commerce of Metropolitan Montreal. “A recession would probably cost $3 billion in revenue, and if we do additional spending, probably $5 billion in total. So it would cost at least $5 billion.”

Although inflation in Quebec has slowed from as much as eight per cent last year, it remains too high, the minister acknowledged. At 4.8 per cent in September, Quebec’s inflation rate was the highest in Canada, tied with Nova Scotia. The national average was 3.8 per cent.

Girard’s best-case scenario for the Canadian and Quebec economy involves a gradual reduction in inflation over the next few months. This would allow the Bank of Canada to start cutting its key interest rate next spring or next summer from its current five per cent level, he said. Girard calls this scenario the “normalization of interest rates.”

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Until 18 months ago, “interest rates were at zero, which is probably not the level where they should be,” Girard told reporters after Friday’s event. “Now they are at five per cent, which is probably not the level where they should be either. A five per cent rate aims to slow the economy and push inflation down. Right now, the economy is slowing and inflation is coming down softly. So the light at the end of the tunnel is if, in the spring or in the summer of 2024, inflation has sufficiently fallen so that we can have a monetary easing.”

Some economists and market strategists are expecting rate cuts of 100 basis points next year. If Canadian interest rates do start coming down in the second quarter of 2024, “we will have a recovery,” Girard added. “Until then we will have what we have now — a very difficult period.”

In the meantime, “there is nothing we can do from a budgetary perspective that will compensate for the fact that people are paying $1,000 more a month in interest payments on their mortgage. That’s $12,000 a year. A monetary easing helps on credit cards, auto loans, mortgages. It also helps companies with their working capital.”

Asked where he thinks interest rates could eventually settle, Girard said: “Normally it corresponds to the nominal growth rate of Canadian GDP, that is to say 3.5 per cent. People will say the neutral rate is between 2 and 4, so let’s say three per cent.”

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