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Today the Bank of Canada announced their first large rate reduction on the back of falling inflation and lower economic growth.

The 50bps cut now brings the Overnight Rate to 3.75%, which was the target rate almost two years ago exactly.

There are many factors that have led to this announcement, including (but not limited to):

Stagnating GDP figures: Real GDP grew only 0.5% in Q2, and fell by 0.1% on a per capita basis (the fifth consecutive decline quarterly)

Easing inflationary pressures: Canada’s Consumer Price Index rose 1.6% in September, the first increase of under 2% since February 2021. Despite this, costs for many goods and services remains elevated, especially compared to pre-pandemic pricing.

Slowing job and employment growth: Unemployment remains high across the country at 6.5%, while the employment rate (the proportion of the population aged 15 and older who are employed) feel to just 60.7% in September 2024. Public sector employment is up 3% year over year, with the private sector at only +1.5%.

Additional trends notable to the construction sector:

Investment in non-residential assets slows: Business investment in non-residential structures grew only 0.5% and investment in non-residential construction fell 1.2% in September 2024.

Housing activity down: Investment in housing fell 1.9% in Q2, driven by lower investment in new construction as well as a slowdown in renovations. Both metrics were primarily influenced by sluggish activity in Ontario. Housing starts (-1.3% in September) rose in Alberta, Quebec, and the Atlantic Provinces, and declined in Ontario and British Columbia.

Looking forward – BTY anticipates that construction growth will continue to maintain a slower pace, especially around the winter months. Lower interest rates should ease carrying costs for borrowers and incentivize investment; however, these effects often have a lagging timeframe.

The Bank of Canada has cited that there is excess supply in the overall economy relative to demand which is driving down growth. Modest growth in 2025 and beyond should help absorb this , and there are major infrastructure investments that continue to support the construction industry.  Many markets such as Vancouver Island, Interior BC, the Prairies, Quebec, and Atlantic Canada continue to provide opportunities in the residential, commercial, transportation, healthcare, and education sectors.