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Desjardins Leading Index

An Accelerating DLI Points to Continued Growth for Quebec's Economy

November 4, 2024
Hélène Bégin
Principal Economist

Highlights

  • The Desjardins Leading Index picked up speed to rise 1.4% in August (graph 1) after increasing 0.9% in July.
  • Compared to the month prior, nearly all the economic data improved, particularly those related to household spending and the housing market.
  • Business indicators are progressing more slowly. SMEs remain hesitant due to persistent challenges surrounding skilled labour and wage costs.
  • The outlook remains favourable for the Quebec economy, which returned to growth in early 2024. However, downside risks are ever-present in Canada and elsewhere in the world.

Comments

Positive signals from households are more convincing than they were a few months ago. Retail sales rose 1.3% in July and 1.0% in August, in what were the best back-to-back gains in several months. Motor vehicle purchases also advanced in the third quarter, and year-to-date numbers are up 12.2% compared with the same period last year. The share of consumers who believe it's a good time to make a major purchase increased, and this is reflected in higher household spending.

Many borrowers are feeling less financial pressure now that interest rates are coming down. In fact, the Bank of Canada (BoC) External link. accelerated the pace of cuts in October with a 50-basis-point reduction. Interest rates for personal lines of credit and variable mortgages come down in lockstep with the BoC's policy rate, which reduces the amount of interest borrowers owe each month. However, even though interest rates have been trimmed, most households renewing a fixed-rate mortgage in 2025 or 2026 will end up with a higher rate than they had before.

Cooling inflation is also helping. In Quebec, it slowed convincingly to 1.3% in September, easing households' concerns about where consumer prices are headed (graph 2).

After rebounding swiftly in the first half of 2024, the residential sector continued to see improvements during the third quarter, but progress has been uneven. Housing starts seem to have stalled while existing home sales have pushed steadily higher. On December 15, the maximum amortization period for first-time homebuyers will increase from 25 to 30 years, which should give the resale market an added boost (see our Spotlight on Housing External link.).

On the business side, SME confidence is waning (graph 3) despite falling interest rates and inflation. Investments in machinery and equipment have started to pick up, but exports have been losing steam in recent months. What happens next will largely depend on the outcome of the US election, as outlined in our recent analysis External link.. 

Implications

According to the latest DLI results, the outlook is mainly improving for household spending and the residential sector. With various figures trending positively, it's clear that the economy has regained its vigour and real GDP External link. is rising. But businesses have yet to feel the effects of Quebec's economic recovery, and there are still a number of uncertainties to contend with. 

The Desjardins Leading Index is a composite index that allows market players to monitor shifts in Quebec’s economy that may indicate an imminent slowdown, recession or recovery in the next six months or so. NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.