Our reports: Economic Impact

The latest financial news made simple. Here’s everything you need to know, thanks to our experts Stéfane Marion and Denis Girouard.

Market records against the backdrop of a weak economy

March 19, 2024        Transcription

In this video: Market performance | World economy | Employment | Productivity | Inflation

Canada caught in a population trap

February 14, 2024        Transcription

In this video: Market performance | Inflation | Housing | Demographics

Much good news expected in 2024

January 11, 2024        Transcription

In this edition: Earning expectations | Market conditions | Employment | Demography | Interest rates

Despite a successful end to the year, the future remains uncertain

December 12, 2023        Transcription

In this video: Market performance | Supply chain | Interest rates | Inflation



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Little details that matter

Hello, everyone and welcome to Economic Impact. Today is March 19, 2024 and as usual, I am with our Chief Economist, Stéfane Marion. Hello, Stéfane.

Morning, Denis.

Good morning.

Well, another month, same story. Equity is still doing very, very well, but not only in the US right now. Yeah, another month, another record. And you can see it's not solely driven by the US right now. The blue line is the overall equity markets global. The red line is excluding the US. So it seems like people are interested in buying something cheaper elsewhere. So therefore they're buying other country stocks and it's moving the needle higher for equity markets.

Well, good for them, but at the same time not all the economy are going in the right direction.

You're buying on hope, Denis, because economic data is not very constructive right now. It's mostly PE expansion, so price earning expansion, as you see on the slide, we only have 3 countries in the G7 economies that are contracting and 3 others that are stagnating. So really, it's the US that stands apart from other countries. But I assure you any monetary policy is restrictive in every country.

OK. But at the same time in the US we are seeing and keep seeing a very, very big deficit.

Yeah. So if you're asking me why the US is doing so much better than other countries, because I had not forecast unprecedented government deficits in the US, Denis, running at roughly 6% of GDP right now. It's unprecedented to see this type of fiscal stimulus at this at, at this point in the cycle. So were it not for the government, I assure you the US economy would be much weaker than it is right now.

Yeah, and we are in an election year. That means that they may stay like that for a while.

Yes. But it depends on what the impact will be. Also on interest rates down the road. If you de anchor inflation expectations because of massive deficits in the US. Yeah.

And at the same time we're seeing a contraction in employment, which is kind of unusual because you know we are having such a big deficit, we should create more jobs. But even if the jobless rate is at 4% or so, we're creating less and less jobs.

The impact on the private sector coming from restrictive monetary policies, particularly small businesses, Denis. So if you look at full time employment in the US, it's been stagnation for the past 12 months. So corporations, in order to salvage their guidance on profit margin expansion, are forced to reassess their needs on the labour market and therefore they have opted to hire people part-time nowadays as opposed to a hiring them full time. And that speaks to me to a potential deceleration in the US economy in the months ahead. And we're going back in history and you're bringing back the bank, you know, problem that we had in the regional banks last year and the next slide I think showing that we should be concerned now.

There is stress in the private sector. If you don't hire people full time, should you be surprised that we're seeing delinquency rates on the rise for consumer loans and credit card loans, which by the way, are higher than they were at the height of the global financial crisis in 2008, 2009. So that speaks to me, Denis, in saying that you know what, yes, the consensus is expecting a soft landing for the US economy. Perhaps that will happen, but that's not our baseline scenario because we view this stress as symptomatic of significant deceleration to come in the US not withstanding massive government support. At this point in time, I still think we're going to see significant economic slowdown and therefore you'll be forced to reassess your profit expectations.

OK. Then maybe on a better note or not, if we are coming back in Canada on the employment sector. How does it look now?

Denis, no but I want inflation to come down! But if you want inflation to come down, you gotta slow the private sector. So it's slowing in the US, so let's not be surprised, but let's be prudent on equity exposures at this point in the cycle. So in Canada, not much better than any restrictive monetary policy is impacting the private sector. And you can see on this slide that it's been stagnating for the past six months. So were it not for public sector employment, labour markets would be much weaker than what we've seen so far in Canada.

At the same time, we're not investing enough in the Canadian economy.

No, we're not. And two things, private sector slows in terms of employment. We've seen a resurgence in business insolvencies which are back to where they were in 2008. So Denis, that's not great for productivity down the road such as the private sectors being negatively impacted by restrictive monetary policy.

And you know if we're coming back to the GDP versus the US in term of PPP, how do we look?

Well, first of all, on productivity, we're not doing well at all. So that's a reflection of what you said. We need to attract investment in this country. And what we've seen is that the most recent data speaks to 3 consecutive years of declining productivity. So what that says, Denis, is that in order to get the economy to do better in the months ahead, we need to attract investments.

And that's kind of new. Three years in a row and we are accelerating right now compared to last year. Yeah, it's a big concern.

It's unprecedented and if you don't have good productivity, it will be reflected in earnings expectations and will be reflected in the relative performance of equity markets around the world. So we're definitely not doing well. And it's a reflection also of what you see, this discount of the S&P TSX relative to the S&P 500, is investors, whether they are Canadian or foreign, are shunning the Canadian market right now. So as the data on productivity was published, Statistics Canada also showed that for the first time since 2007, both foreign and domestic investors were taking some of their marbles out of the Canadian market. So therefore, yeah, that explains the relative underperformance of the Canadian economy. So basically, it's really important in the next federal budget, Denis, that the federal government comes up and with a more business friendly environment to encourage institutional investors to bring back investment to this country. We need a more business friendly environment in this country.

And it's even worse when you compared to the US. Oh, if you don't want to do that, Denis, then we're just going to get, if you don't do anything, we're going to get this continued deterioration on the relative standard of living between us and the US. So per capita GDP in Canada, which used to be 82% of the US, right now is down to 76%. So we're earning, you know, 1/4 less than what the Americans are earning right now just because of this, this deterioration in productivity, which is symptomatic of lack of business investment in this country. And this is why we need this next federal budget to be more business friendly to attract investment to the country.

Last but not least, one of our favorite subject, inflation, and we have a very fresh number this morning. How does it look?

It just came out, Denis, so CPI was very, very low for this month. So you're down below 3%. But then if you exclude the shelter component on which the bank had is has no control, you're at 1.3%. So that to me opens the door for potential rate cuts in Canada this summer. You know you can't justify keeping monetary policy as restrictive given what's happening in the private sector, which we've been talking to for the past few minutes. The Bank of Canada has to change its forecast and open the door for rate cuts as soon as its next monetary policy. Meaning, they may not cut rates in April, but I think they will open the door for rate cuts this summer.

OK, is it too late?

They waited too long in my opinion, but it is what it is. Their models are calibrated. It's hard to calibrate models for this type of economy. But yes, that argues for rate cut, but it also argues for a weaker Canadian dollar, Denis.

Well, thank you, Stéfane, and thank you everyone for joining us today. We'll see you next month. Goodbye.

Hello everyone and welcome to Economic Impact. Today we are a February Fourteen 2024 and as usual. I am with our Chief Economist, Stéfane Marion. Hello, Stéfane.

Denis, February 14th. Thanks for being my Valentine.

Oh my God. OK, let's start. OK. Today I think we need to talk about the equity market once again because we had new high.

Yeah, it's it's been staggering since last November, and the US Federal Reserve opened the door for potential rate cuts in 2024.

Yeah, new high early in February. We are actually surpassing the previous record that was established at the very end of 2021. So it's been a

it's been an unusually strong performance since November. And it's not across the planet, though. It's more North America and a lot more US.

So, two months into the year almost, you know global markets up 3%, mostly driven by US 4%, Japan up almost 12%. But look at the rest of the world, Denis. I mean the impact of previous rate hikes is starting to impact maybe not the US so far because there's been tremendous fiscal policy or, you know, momentum in the US with the IRA. But elsewhere around the world you can feel that there's, there's slowing growth there. So yes, it's new record, but mainly on the back of the US and Japan. Yeah, good. And one of our favorite, favorite subject inflation. Once again, we had the US number yesterday was a bit surprising. So there you go. The market is up since November because the Fed opened the door for potential rate cuts in 2024. But all of that is very much dependent on what happens on inflation. So expectations or rate cuts may need to be reassessed given the latest number on inflation. Yes, overall inflation is at 3.1% and we're way down from the 9% that was observed in 2022. But core inflation which excludes food and energy is at 3.9%. It's actually accelerating on a month-to-month basis right now. So, I think there will be rate cuts this year to you. But we actually in our current forecast, we pushed them back to the third quarter of this year and the market was expecting not too long ago potential rate cuts as soon as March of this year. So from a stock market perspective, you may need to reassess your expectations because the longer the Fed delays its rate cuts, the more there's a potential for a deleveraging episode in financial markets.

Remember, not that long ago, you know, we were expecting rate cuts late in 2024. We changed our mind because we saw big deceleration inflation. Now we're back to square one almost.

It's hard if you're central bank or to calibrate models incurring contacts. And don't forget any commercial real estate is yet again becoming a concern and for regional banks in the US and under these circumstances, again, the longer the Fed delays its rate cuts, then the more you're likely to see collateral damage and some parts of financial markets. That's why we say they've never been ever before a monetary tightening cycle without one episode of deleveraging, and we have yet to see it.

If we're back in Canada, we'll look at inflation once again. You know, not same number, but same direction, but for different reasons.

Yeah, the bank account, unlike the US hasn't been as aggressive in guiding towards potential rate cuts and for good reason. Unlike the US, the Bank of Canada is struggling to see through shelter cost inflation, which is running at 6%, which is unprecedented at this point in the monetary tightening cycle. It should be coming down, but it's stuck at 6%, Denis.  And the Bank of Canada last week actually acknowledged that yes, we know it's shelter costs. We don't control it, but we can't ignore it. So therefore at this point in time, they're not promising imminent rate cuts. So, in Canada also, I think we push back our rate cut expectations to the second-half of this year.

Yeah. And we thought that the housing affordability was getting in the right direction. But once again, numbers show that no, not exactly. Especially it's the same across Canada, but at different level. It's not good, Denis. So yeah, you're right. Shelter costs inflation reflects the fact that home affordability is deteriorating quite significantly.

You know, in Vancouver or Greater Toronto Area, you know, households have to devote 90 to 100% of median income to purchase a home. Not going to happen, right? It's the worst affordability in in over 2 generations. You got to go back to the 1980s and it's across the board, not so much in Alberta at this point in time, but the rest of the country clearly struggling with and affordability crisis. I would depict it that way.

And once again another in fact landmark working age population surge once again in January which is a huge number. 

So, I can't bring down affordability. People are saying it's going to come down if rates come down, Denis, it can't come down if you're population continues to search because that's higher demand for housing. So we spoke to what happened in 2023, population growth of 1.2 million people were starting the year with 125,000 in a single month, the month of January, Denis. It's a new historical record for Canada on a monthly basis. In the Greater Toronto Area, for example, the largest metropolitan area in Canada, it's 32,000 people per month right now. That's a, that's 25% of Canada's population growth is happening in the Greater Toronto Area, which is putting tremendous pressure on the public finances of the, you know, the fiscal House of municipalities across Canada, but particularly in the Greater Toronto Area. So, I can't bring improve affordability with this type of population search.

And once again it's because rates are still high not to help building permits are going down which is creating more problem.

And Denis, everyone knows you have to calibrate your immigration policy given where rates are and then if rates are high property builders are just not building right now. So, the government says we need more supply, yes but the rate structure is not conducive to more supply. So we have surging population with building permits plummeting across most metropolitan areas. Look at the GTA, Vancouver, Montreal, only Calgary is trending up right now, but if not it's multi year lows. So you have population and multi year high with building permits at a multi year low. So that's not going to improve affordability anytime soon.

No, no, and at the same time we are trapped in what we call a population trap which is an economic kind of subject.

You know, we wrote a piece on that and the idea doesn't come. We didn't invent the term, Denis. It was invented by Robert Solow - Nobel Prize in economy who argued one day that you know you can grow your GDP, your economy through population up to a certain extent. There comes a point that if you don't have enough investment in the country, while your population increase can no longer lead to improving living standards. So the population trap that we're seeing in Canada is historical. It's unprecedented. Normally, it's the preserve of emerging markets with, you know, high natality rates, fertility rates, not the case in Canada, which is written by immigration. So again, we're very much for immigration as long as the government is able to calibrate for where we are in the cycle. Notice on this slide that the US has experienced a brief population trap after the 2008, 2009 financial crisis when banks stopped lending collapse in banking sector, but they rebounded. But look at the extent of the population trap in Canada at this point. Is, what, five? Yeah, and five times greater than us during the great financial crisis. So hard to get out of that. So all I'm saying here is we, we know immigration. We have to welcome people with dignity in this country. And right now, given the capacity, the first 3 to 500 people get access to certain services and the balance all the way up to 1.2 million. While they're not welcome to the country with dignity because we don't have the capital or the services to go along with that.

That's why we have to recalibrate on that front. Because if you don't improve the population trap, the living standards are not going to get better anytime.

Yeah, we need to do it sooner than later. And you just mentioned it's the standard of living is going down in Canada because of all of that.

So this is, this is the concept that what leads the clear indication that you're in a population trap is when you look at your capital labour ratio and then you compare that to your per capita GDP. And right now living standards in Canada have been eroding. They've been at a standstill for almost six years and they've been eroding in six consecutive orders, which is almost unprecedented for the country. So again, it's just a question of recalibrating, given where you are in the cycle. That's why we're advocating for Ottawa to put in place a special committee of experts that could actually advise the government on what the country can absorb in terms of population at any point in time, given where you are in the cycle. I think we have to depoliticize this whole thing and we get, we have to get the overall number of what the country can absorb. Again, it's a question of welcoming people with dignity. If not, we're going to have a reputational risk internationally if we can't welcome foreign talent with dignity. You're very right on that.

Well, once again, it's very interesting. Stéfane. Thank you very much for being with us. And thank you also all of you for watching.

Hopefully we'll see you once again there in the beginning of March.

Thank you.

Hello everyone and welcome to Economic Impact. Today is January 9th, 2024, and I am with our Chief Economist Stéfane Marion. Hello Stéfane, how are you?

Happy New Year Denis.

Happy New Year to you.

Stéfane, we had a spectacular year on hand in terms of you know, financial results once again and it was good when we had our last Economic Impact discussion. But the last two weeks were spectacular.

Yeah, Denis, there's a lot of hope in the system, right. It's all the stock market increased quite substantially but it was all due to price earnings expansion. So PE expansion means it's hope that the economy will turn around soon and deliver better earnings in 2024 versus what we had in 2023. But at the same time, you know we saw that global manufacturing is kind of a slowdown, it keeps going on.

Yeah. So "hope" doesn't mean that it is what you're observing right now in the market and what you're observing in the market, the most recent data shows that as of December we've had 16 consecutive months of contraction or let's call it stagnation, Denis if you want, but even stagnation is not very conducive to a rebound in earnings in 2024. So that's the challenge for the markets expecting potential rate cuts to happen to help. But at this point in time, it's not a great picture for the global economy.

You said it at the opening, but the expectation of the earnings for 2024 are, I would say, spectacular when you compare 2023.

Yeah. So you want me to put numbers on that right now?

Of course.

OK, fine. So in 2023, there was no earnings growth, Denis, it was 0.1%. So the stock market did very well, as I said before, it was PE expansion on the expectations that 2024 would do better. And the expectations for this year is that earnings will rebound 10% globally. But notice, Denis, in that column all regions are expected to show a - deliver - a rebound. So quite aggressive when you consider the state of the global economy that I showed on the previous slide.

OK. Is it because you know people are expecting that the inflation will go down faster and lower than what was anticipated in 2023?

For rate cuts, perhaps. So inflation is coming down because growth is slowing down. But in terms of pricing power, which you know is a key driver of profitability for corporations, the red line is what consumers are paying, Denis, the blue line is what producers are receiving. So the pricing power that was observed in 2022, where you can raise prices by 10%, it's no longer there. Prices are not, you can't raise prices more than 2% at this point in time. So from a producer standpoint, that is quite challenging to expand your profit margins under these considerations.

OK. Then if the market is expecting more earnings and their ability of pricing is lower, is it because salaries will go down?

One would hope so. And I think eventually that is the transmission of monetary policy, it works with the lag. It will happen eventually. But right now Denis, what you're seeing is that salaries, average hourly earnings, are still stuck at around 4%. So you're dealing with less pricing power, but wages that are still at 4%. So quite challenging for profit margins.

Yeah, not easy for those companies, but we have also the newcomers in terms of data that are coming in the economic environment. It's once again cost of shipping. We had that in the COVID period. And now it's back.

Yeah, Denis, geopolitics is not going away in 2024 and we have to keep that in mind, right. And given what's happening in the Middle East right now and the Strait of Hormuz is being challenged as well as Canama - Panama Canal - shipping costs have increased. Have more than doubled, have almost tripled in recent weeks. So that will add to the dilemma faced by producers as they're now facing less pricing power, higher shipping costs and perhaps a compression of profit margins.

Again then that means that once again expectation of those earnings seems to be a bit high in the context. It's aggressive. I'm just giving you the backdrop on which these are these expectations are based. Things have changed quite rapidly in recent months on that front, or recent weeks, just on the geopolitical front. So that's a big deal in my opinion.

In the past, we discussed about the impact of interest rates on manufacturing sector and now we see the impact going up again.

That's how it works, Denis, right. We've said it before, you raise interest rates quite aggressively. You're going to get some impact on economy at some point in time. And what we've seen in recent quarters, there's a pickup in the number of bankruptcies. So corporations again have phased by all these factors that I mentioned previously, plus they need to cope with the impact of previous interest rates as they need to refinance the corporate bonds at a much higher level. So that is an impact also on, on corporations.

Yeah. And as usual you know we saw the employment number last Friday. It was not a good number when you look at it you know, in deeper.

Well they're a bit confusing. So given all the factors we mentioned, if you're going to trying to protect profit margins then what you have left at this point in time is maybe you want to streamline your head counts. And whereas jobs were up in December in the US, headcount overall in the US economy were up roughly 200,000, there was a big contraction in full time job. So again, this is the adjustment that corporations are doing to protect their profit margins and, Denis, outside the COVID recession that was the biggest decline in full time employment in over a generation in the US. So clearly there's something happening with past - you know - impact of previous rate hikes is leading to a reaction function from US corporations to streamline their headcounts. That could have an impact on consumption and therefore earnings growth in 2024 again.

But about Canada and in Canada, you know we had a number also and I think Ontario was really impacted by you know the payroll.

Yeah, corporate profits have been down for a few quarters in Canada. So you would expect that at some point in time also to impacting employment data. So what we saw in Canada similar to the US. Total jobs relatively flat on the month, but the big adjustment downwards to full time jobs. And in terms of, from a regional perspective, Ontario, we know the impact of interest rates will bite more in provinces where home prices are higher and higher indebtedness at the consumer level. So the employment-to-population ratio, the adjustment we're seeing right now in Ontario is quite large, because we fall, we fall into below 61% outside the COVID recession, you have to go back to 2008. So clearly the impact of previous rate hikes is also biting on the Canadian labour market.

And lastly, one of our favorite subject, demography I would say, and once again you have numbers that prove that there's a lot of new immigrants in Canada.

Yeah, so just after we did our last show, you know, a couple days later there were Statistics Canada published new population growth number which exacerbates the, you know, the down trending in the employment population ratio and I'm showing to Ontario. It was just spectacular. It was the biggest increase, more than 400,000 population growth in the entire quarter. That even exceeds the quarter when Newfoundland joined Canada in 1949. So it was, I think it was close to 430,000 people. Denis, at this point in time, I know the policymakers are saying we need to grow our population to, you know, compensate for an aging in a population. But right now Denis, Canada's growing 6 times faster than the OECD average. I don't think we're aging that fast and all provinces are showing at least twice the growth of the OECD. So what that says Denis, to me, is that you know housing will be an issue again in 2024. Home prices will not be collapsing just because of this population surge. But rent inflation will be higher and the endpoint Denis means that a component of inflation will be higher limiting the ability for the central bank to cut rate. They will be cutting rates, Denis, but housing, due to strong population growth will limit the downside on interest rates.

You showed us in the last year I think it's December that without the component of household the inflation is already around 2 or even below 2%.

Without housing we're at 2%.

But because those numbers, you know we're going to be still above 2% no matter what.

We're close to 3% at this point in time. So rate cuts are coming in Canada, that's good news for households, for homeowners, etc. But they won't be as aggressive as in the past due to this surging population.

But with all of that rate cuts more at the end of the year or you know middle of the year or where do you see that? I take starting your second quarter of this year, which we'll see the beginning of rate cuts. So I think globally, so that's good news for the global economy, but the banks, central banks will be cutting rates because the global economy won't do, won't be doing so great. So I know everyone is positioned for great news rebounding earnings. I still think that the economy might disappoint in 2024, hence her view that I know we've been saying that for a few months, but we're still in that window where there could be more volatility on the economy than people expect for the next few quarters.

Well, thank you Stefan for all those forecasts for 2024. Once again, thank you. Thank you everyone for being with us. We'll see you next month with more data and more news.

Hello everyone and welcome to Economic Impact. Today is December 12, 2023. I am with Stéfne Marion, our Chief Economist. Stephane, can we come back on what happened on rates and you know yield for the last year return, let's say.

We can do that, but first, let's speak to what we said last time. November was shaping up to be a good month and there's been some follow through in December and the quarter to date is just spectacular, Denis. The new equity is up roughly 8%, bond market is also up 6% as yields have come down. But to your question, how to qualify 2023 with two weeks to go in the year, it's been a story about equity markets, S&P 500, European stocks, even SNPTSX emerging markets outperform any other asset classes. So, it was the year of equities in 2023, Denis, but it was all on the back of multiple expansion, higher PES. It's not because earnings were up.

That's quite interesting because you know it's a little bit hard to see what will come in 2024. Let's go back to some economic news and let's talk about the supply chain here.

Yeah. So, the multiple expansion is on the back of yields that are coming down and interest rates are coming down long term treasury yields, that is, Denis - bond yields coming down because the supply chain which was the most inflationary on record has turned out to be now, has become the most deflationary in over a generation. That's why inflation is coming down and that's why yields are coming down. So, no one could have predicted that the supply chain would come back in this, this this kind of state so quickly.

Yeah. At the same time also we're seeing a deterioration in, you know, factory operating conditions. And once again, it's kind of disconnect with what we see in the stock market.

Well, if it's deflationary, Denis, you're right, we need to ask what's happening, what's behind that deflation. And the reason for deflation is because higher interest rates have had an impact on the global economy and we're seeing that from a factory's perspective, everything that's related to manufacturing is actually stagnating or actually contracting in some parts of the world such as Europe. So clearly, reason prices are coming down is because economic activity is lackluster and that's how you normally have the impact on interest rates bring down inflation. But the question is, Denis, what will he do on profits going into next year, right?

Yeah, that's what we're going to see in the coming months. But also at the same time, rates are still high and they are affecting the economy.

Yeah, hence the question about the so-called assumptions that earnings will rebound everywhere around the world in the context where Americans are devoting a record share of their income to an interest rate payments. So, we've never seen this in the past. All I would say Denis, under these conditions, I would think that growth will be significantly slower in the US next year where there’s the potential risk of recession, hence the question about is it normal for the stock market to give so much multiple expansion.

Or so much hope in the economy.

You're right. So, it's a soft landing assumption at this point in time still and we're still skeptical about that scenario.

But every data that we're looking at they are quite high or unusual for you know a real slow down and that people are expecting. You know, is it normal?

You know, people tend to deny an incoming slowdown as long as possible. People tend to expect the best and - but you're right, this is actual data about, you know, interest payments, but leading indicators are actually pointing to significant deceleration. Those are a number of indicators - we're seeing right now until so far, but the leading indicators are pointing towards a deceleration. You're absolutely right.

OK. And when you come back to Canada and you look at the, you know, performance of our stock market compared to the US, you know, one of your favorite subjects is that there's still a big discrepancy. Is the Canada ahead of the US right now or the rest of the planet?

We haven't seen the same multiple expansion on this side of the border, which means that if you compare the US, which is the most important, the most expensive stock market on the planet at 19 times forward earnings, you can see Canada roughly 13 times. The discount to the US is a near record high, Denis, so almost 6.6 percentage points. So we've rarely seen this over the past, my God, 30 years.

Wow, that's big. But at the same time, we're seeing that the economic data in Canada are really pointing down and this is something we're seeing on the private domestic demand.

I won't deny that. And that's the reason we're not getting the multiple expansion. And when you look at the GDP data was released for the third quarter in Canada was down 1% and the US was up 5%, 5.2%, so a massive divergence. More importantly also as private domestic demand is also down, so it's not a good combination. Clearly the impact of interest rates is biting on the Canadian economy, hence the significant discount on the stock market this year.

Yeah. And remember the last time we were looking again at CPI, CPI is decreasing, but not everywhere.

No. So slower growth or economic contraction is leading to lower CPI inflation. You're absolutely right. Historically, you know we're just above 3% right now. So we had gone up to 4% so it’s lower. But you can see on this slide, Denis, you know why is it still resilient? It's mostly because of the grey line, the shelter component which is 28%. If you exclude shelter, you’re actually below 2%. So you should be in a position to cut rates aggressively. But I just can't give you that from a Bank of Canada standpoint because the shelter component.

That's interesting because otherwise it probably would have been in a, you know, in a period of time where we can really focus on rates coming down. But right now, with that, you know it's postponed until we can see, you know, an immigration slow down then less impact on the shelter and the price of, you know, renting houses.

That's a good point because we're seeing why shelter accelerating at this point in the cycle and the Bank of Canada has finally come up with a study where they’re no longer denying the impact of very, very strong population growth on the shelter component of CPI, which is a big component. So as of last week, the Bank of Canada recognizes that you know there's a big impact there and it doesn't mean that there won't be rate cuts in 2024, it's just it will be less aggressive than what we've had in the past. So we're looking at maybe 100 basis points, maybe a little bit more, but rates will still - at least are coming down, Denis, but will still be high from an historical perspective.

Yeah. But also, the impact of those pretty high rates right now are not the same in every province. Canada is a big country, but the impact of, you know, the rise of interest rate has impact differently in different provinces.

Yeah, you're absolutely right. It would be a mistake to assume that the impact of higher rates is the same across all regions. For example, if you look at real interest rates, so the overnight rate from the Bank of Canada deflated by CPIX shelter in every province, you can see that real rates are extremely restrictive. In Alberta, 5% real rates and at the other end of the spectrum, you have Quebec at 1.9%. But note Denis, on this slide, anything above 1% real rates, by this measure, is considered restrictive. So it's restrictive policy - monetary policy everywhere in Canada, but you can see where certain regions might be more forcefully impacted in 2024.

On this note, thank you, Stéfane. Thank you all for being with us. We will see you next month. Until then, the Impact Economic team wishes you happy holidays.

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