City of Surrey's 2024-2028 Financial Plan

ECONOMIC OVERVIEW

CANADA The Bank of Canada (“BOC”) held its key interest rate at 5.0% in April, marking the sixth consecutive meeting where no changes were made to the benchmark rate. The central bank no longer cites concerns over core inflation being elevated and has acknowledged that it is seeing the conditions necessary to contemplate interest rate cuts as early as June of this year. Canada’s inflation came in at 2.9% in March 2024, down from the peak of 8.1% last June. The BOC is forecasting inflation to remain at 3.0% during the first half of the year, falling to 2.5% in the last half of the year, and finally returning to 2.0% by the end of next year. The economy is forecasted to grow by 1.5% this year and 2.0% the following year. Canada’s unemployment rate came in at 6.1% in March, rising by a full percentage point over the last year. Despite the slowdown in job growth and increased unemployment, wage growth has held steady with the year-over-year average hourly wage growing by 5.1% in March of this year. The BOC noted that wage growth of four to five percent would be considered inflationary. Analysts are expecting the central bank to cut its policy rate two to three times this year. If the projections hold true, the US and Canada will be heading towards divergent interest rate policies. This would lead to Canadian dollar depreciation, resulting in imports becoming more expensive while exports become more affordable to foreign buyers. According to a Royal Bank of Canada survey, six in ten Canadian mortgages with major banks will be up for renewal in the next three years. Over the next two years, 2.2M mortgage holders will be bracing for renewals at a much higher interest rate, resulting in significant increases to mortgage payments. Mortgage servicing costs rose by 25.4% and rents have increased 8.5% compared to the previous year. Housing affordability continues to be a challenge for renters and homeowners, leading to calls for the BOC influence housing prices by lowering its key interest rate, thereby exerting downward pressure on the market for mortgage financing. According to the Canadian Home Builder’s Association, housing starts have fallen for two consecutive years with developers citing significantly higher construction costs, development fees and financing costs as reasons for the slowdown in construction projects. The central bank cites the imbalance between housing supply and demand as the key contributor to housing affordability and stated that reducing interest rates will not help with housing affordability.

Interest RatesTrend

The Federal government introduced the budget for 2024, proposing $52.0 billion in new spending over a five-year span. The budget has higher spending, higher deficits and higher taxes targeting individuals and corporations. The government is forecasting budget deficits for the next five years with the current year deficit forecasted to be $40.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Prime Rate

BOC Key Interest Rate

billion. High interest rates are affecting government finances as well with the Federal budget projecting 10.0% of 2024 revenues to go towards debt servicing.

Source: Bank of Canada

City of Surrey | 2024—2028 Financial Plan | Financial Overview

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