Quebec’s Economic Outlook Looks Positive as the DLI Continues to Rise

Things are looking up for households and businesses alike. The consumer confidence index is gradually recovering after reaching a cyclical low in late 2023 (graph 2). In addition, the proportion of consumers who now think it’s a good time to make a major purchase, like furniture, a car or a house, has doubled in the past six months (graph 3).

The housing market is perking up after two years of sluggishness. In the first 7 months of 2024, housing starts rose almost 35% and home sales increased by roughly 15% over the same period last year.

That said, our most recent analysis External link. (table 1) found that the job market slackened over the past few months, especially in the Montreal area. The number of workers fell and the provincial unemployment rate rose to 5.7% this summer, up from the 3.9% low recorded in November 2022. Young people and recent immigrants have been particularly hard hit by the reduced demand for workers.

On the business side, SME confidence is gradually edging up (graph 4). While there are lingering concerns about input costs and wages, these issues are gradually easing. According to Statistics Canada External link., the outlook is more favourable than it was at the end of 2023. That said, businesses are still reluctant to invest even though many expect to see demand rise.

Households and businesses are finding reassurance in a number of factors. First are the interest rate cuts announced in June and July, which shaved a total of 50 basis points off Canada’s key rate. These reductions should be just the beginning, as the rate-cutting cycle is expected to continue. According to our most recent forecasts External link., the Bank of Canada policy rate, which currently sits at 4.50%, should reach 3.75% by the end of 2024 and 2.25% by the end of 2025.

The second bit of encouraging news is that Quebec’s inflation rate External link. has made convincing progress toward the 2% target. With Canadian inflation also returning to the middle of the 1% to 3% range, consumers are feeling relieved. And yet consumer prices in general remain high following the steep increases from the past few years.

Another issue is that interest rates are still high despite this summer’s cuts. While business and consumer confidence are on the rise, the financial impact of the pandemic is still being felt.

The latest DLI results confirm that Quebec’s economy is set to keep picking up steam. With various figures trending positively, it’s clear that the economy has regained its vigour. But the province will have to navigate international economic and financial uncertainty, and it remains vulnerable to any economic woes experienced by its main trade partners, particularly since the US economy starting to show signs of cooling and the Canadian economy is facing a number of challenges.