Many economists are forecasting a soft landing for the Canadian economy this year. Deloitte is here to remind us that even soft landings can hurt.

In a report the accounting and consulting firm shared with The Logic ahead of its Jan. 9 publication date, it projects steep declines in GDP growth in 2024, fed by flat business investment, slowing government spending and waning consumer confidence.

Here’s what you need to know.

More retraction to come: Deloitte expects the economy will continue to shrink in the last quarter of 2023 and the first quarter of 2024 before it climbs back to negligible growth in Q2. 

The drop-off will be most pronounced in the prairie provinces: after seeing blistering 5.3 per cent growth in 2022, Alberta is expected to post 2.6 per cent GDP growth in 2023 and 1.2 per cent in 2024. Saskatchewan will fall from six per cent to 1.1 per cent over the same period. Ontario, British Columbia and Quebec will also swoon, with each expected to post almost undetectable growth of 0.2 per cent in 2024. 

Productivity measured as GDP per capita, already in decline or near zero for six straight quarters, will continue to contract by around three per cent in the first quarter and one per cent in the second. 

Capital spending dries up: Adding to the somewhat troubling forecast is that businesses are unlikely to lead the recovery. Non-residential business investment dropped 10 per cent in the third quarter of 2023 (particularly in aircraft and other transportation services), and Deloitte expects to see “virtually no growth in capital spending” in 2024. 

Major projects like the $40-billion LNG Canada export terminal in British Columbia, as well as oil and gas pipelines like Trans Mountain and Coastal GasLink, are nearing completion, and will leave a crater in wider investment levels, Deloitte said. Lower consumer demand in the U.S. is expected to weaken Canadian exports, made worse by a bad harvest season for farmers that could see agricultural exports contract by around 14 per cent this year. 

The “freeze before the thaw”: Still, it’s certainly not all doom and gloom, particularly when compared to worst-case scenarios. 

Deloitte’s chief economist Dawn Desjardins tells The Logic that she expects a “severe slowing in the economy as opposed to something that’s a big, deep recession.”

While economic growth is set to slump, labour markets remain relatively strong, led by rising wages. By the second half of 2024, they expect Canadian GDP to see a sharp rebound, back to around three per cent growth. 

“When we look back at [2024] we’ll be like, ‘Wow, that was a really weak year,” Desjardins said. “But it’s really a front-loaded story, before rates start to move lower, confidence returns and we start to see activity really pick up again.”