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iStockphoto/Muhammad Farhad

Canada’s economic outlook has dimmed, with momentum slowing rapidly in recent months, says S&P Global Ratings.

In a new report, the rating agency cut its forecast for Canada’s GDP growth next year to just 0.8% from its previous call for 1.2% growth.

“After a mild contraction in the second quarter, and with preliminary estimates by Statistics Canada pointing to a flat third quarter at best, the Canadian economy is already flirting with a technical recession,” it said.

Against that backdrop, S&P trimmed its growth forecast for this year by another 10 basis points to 1.1%, and said that domestic demand is on track to shrink by 0.7% this year.

“We maintain our view that this is just the beginning of a drawn-out, sluggish growth path for the next several quarters as the cumulative lagged effect of higher interest rates and a slowdown in global demand work through the economy,” it said.

Demand is forecast to expand by just 0.2% next year, “weighed down particularly by decelerating consumer spending.”

In turn, the job market is expected to come under growing strain.

The unemployment rate has already risen from 5.0% since the beginning of the year to 5.7%, and is now forecast to average 6.1% next year.

“Ongoing signs of deterioration in consumer spending and labour market conditions support our expectation for inflation to keep moderating in the quarters ahead,” the report said.

As a result, S&P said it now believes the Bank of Canada “is done with rate hikes and will cautiously pivot to cuts starting in the second quarter of 2024.”

It expects the central bank to cut rates by 100 basis points next year.