2024 in charts: Experts predict what’s to come for housing, jobs, wages, interest rates and more

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After a year of surprising resilience in the face of high interest rates, Canada’s economy enters 2024 in an uneasy state. It’s almost universally accepted that rate cuts are coming, but when, and by how much, is uncertain. Will recession come to Canada? What will happen to housing markets? Can paycheques keep up with inflation? And is your job safe from artificial intelligence?

To explore these questions and more, The Globe and Mail reached out to dozens of experts, including economists, academics, investors and business leaders, and asked them to each pick a chart that highlights an issue that will be important to watch in 2024 and explain why — just as we did for 2022 and 2023. The result covers everything from Canada’s population boom, the interest-rate outlook and housing to markets, trade and the new frontier of AI.

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Households, work and wages

Workers strike back

Jim Stanford, economist and director, Centre for Future Work

Some observers called 2023 the Year of the Strike, and at times that moniker was fitting. Across a wide range of industries, workers hit the picket lines to support demands for pay increases that kept up with surging inflation. Over the first nine months of 2023 (the latest data at time of writing), Canada lost a total of 2.2 million work days to work stoppages – the highest since 2005. To the end of 2023, total days lost will be even higher: more than 2.5 million days (boosted by walkouts that include huge public-sector strikes in Quebec in December).

Workers have seen their real purchasing power eroded by the outbreak of inflation as the COVID-19 pandemic has eased, and they are angry watching share prices and chief executive officers’ bonuses soar while their own standard of living has been squeezed. Low unemployment and higher job vacancies strengthened workers’ bargaining position – although that is changing in the wake of aggressive Bank of Canada interest-rate hikes.

Expect labour strife to continue for a while yet. Lest anyone complain that strike-happy workers are undermining Canadian productivity, keep in mind that work stoppages amount to just 0.05 per cent of all days worked in Canada. That’s one-tenth the proportion of days lost during the peak strike years in the bad old 1970s.

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More is less

Stephen Tapp, chief economist, Canadian Chamber of Commerce

In 2023, higher interest rates set by the Bank of Canada finally slowed consumer spending. Analysis by the Canadian Chamber’s Business Data Lab uncovers interesting links between higher interest rates, housing affordability and consumer spending. Specifically, we find that consumers in regions with bigger housing-affordability challenges have cut back more on spending. And because spending restraint translates into weaker sales, it’s no surprise that businesses in regions with unaffordable housing markets are also less optimistic about the year ahead.

After adjusting our high-frequency payments data for seasonality, inflation and population growth, our tracker estimates that spending in Canada is down nearly 4 per cent, year over year. When more people are paying more money to buy less stuff, it’s no wonder consumer confidence has fallen to its lowest level since early in the pandemic.

Looking to 2024, with $190-billion of mortgages coming up for renewal at higher interest rates, many households could see their mortgage payments rise by 20 per cent or more. This means more consumers will pull back their discretionary spending – and if inflation finally comes under control, the Bank of Canada will be under increasing pressure to cut rates to provide relief for consumers and businesses.

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Boom, bust and uh-oh

Ted Mallett, director of economic forecasting and Pedro Antunes, chief economist, Conference Board of Canada

The Bank of Canada’s aggressive interest-rate increases aim to stabilize inflation, but this approach has hit young and low-income households the hardest.

Using Statistics Canada wealth data by age cohort and conducting our own analysis, the proportion of after-tax income dedicated to debt financing has surged to more than 12 per cent for young households.

Gen Xers have seen a 2.9-percentage-point increase in the weight of interest payments on disposable income compared with 2019. Millennials face an even larger blow, with a 3.4-percentage-point higher burden on disposable income. As more mortgages come up for renewal, the impact on disposable income is poised to linger, even when rates start to ease.

Older generations, however, appear to be unloading debt quite significantly. Even with higher interest rates, average loan cost burdens on baby boomers and the pre-1946 cohort are about 1.5 per cent lower than prepandemic levels.

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Gloom of youth

Claire Fan, economist, RBC

Finding your first job out of school can be tough in its own ways. It tends to be even tougher during periods of underwhelming economic growth. Historically, young Canadians have seen a much steeper increase in the rate of unemployment during recessions compared with the average increase for the overall labour force.

Students who will graduate this year also had their education suffer from disruptions brought on by the pandemic. Acute labour shortages that have curbed business output over the past few years could mean more weariness against letting workers go, altering the impact of the labour market downturn even as economic growth stalls.

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A real help

Dawn Desjardins, chief economist, Deloitte Canada

The combination of rising interest rates and elevated household debt balances is constraining consumers’ ability to spend. After bursting into 2023 with a flurry of spending, consumers pulled back as rate increases bit. Deloitte’s holiday retail survey showed Canadians planned to cut their recent seasonal spending by 11 per cent, with more than half saying they believed their financial situation had worsened, citing rising rents or mortgage payments. But consumers are getting some relief from wage gains that have run faster than inflation for the past nine months. Wage gains are expected to slow in 2024, but so is inflation, which should give consumers sufficient room to navigate through a stressful period. But it will be tough sledding until interest rates start to move lower in the second quarter of 2024.

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Fit to bust

Peter Berezin, chief global strategist and research director, BCA Research

My pick for the most important chart for 2024 is the U.S. jobs-workers gap, which shows the difference between job openings and unemployed workers. Everyone is focused on the fact that employment in the United States has remained resilient. But there is a fly in the ointment: Job openings continue to trend lower.

We estimate that by the second half of 2024, job openings will have fallen low enough that workers who lose their jobs will struggle to find new ones. Workers who are still employed will become increasingly antsy, causing them to raise precautionary savings. With most of the excess pandemic savings exhausted by then, the economy will start to suffer from a shortfall of spending. A “state transition,” as physicists call it, will occur. Not from liquid to ice, but from boom to bust.

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Falling behind

Royce Mendes, managing director and head of macro strategy, Desjardins

Whether or not you believe Canada is headed for a recession, the path ahead is looking more difficult for workers. A year and a half ago, businesses were scrambling to address labour shortages, giving workers more negotiating power. Fast forward to 2024 and there are 1.25 million unemployed people in Canada, 234,000 more than in July, 2022. The reason is that for much of the past year employment grew at a slower pace than what would have been implied by surging population growth.

The spike in the size of the work force, combined with a slowdown in demand for workers, drove a sea change, and it is now more difficult to find work. Looking ahead, even if Canada can avoid a recession, these trends suggest that employee wage growth is likely to cool off from recent highs. However, if the economy tips into recession, many workers will have more to worry about than just slow wage growth.

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Inflation and interest rates

See the world through central-banker-tinted lenses

Mark Rendell, economics reporter, The Globe and Mail

After surging to a four-decade high in the summer of 2022, the annual rate of Consumer Price Index inflation has declined, falling to the top of the Bank of Canada’s 1-per-cent to 3-per-cent control band in November. The outlook for the Canadian economy in 2024 depends to a great extent on how long it takes to cover the last mile down to the central bank’s target of 2 per cent.

Inflation for durable and semi-durable goods – such as furniture, clothing and appliances – is already back below target. Service prices, by contrast, continue to grow relatively quickly.

Bank Governor Tiff Macklem said in December he expects headline inflation will be “close” to 2 per cent by the end of 2024. The bank could start cutting interest rates before then, he said, but only if it’s confident inflation is on a “sustained downward track.” Here, the bank will pay close attention to core inflation measures, which strip out volatile price movements. If you want to see inflation like the BoC does, look at three-month annualized growth in CPI-trim and CPI-median, the bank’s two favourite measures of core inflation.

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It’s not all about housing

Beata Caranci, chief economist, TD Bank

Be it markets or media, nobody questions that 2024 will mark the year of the rate cut. However, it’s going to be a tricky communication exercise for the Bank of Canada, especially if rate cuts – even modest ones – spur housing demand and strong home-price growth. That’s because households anchor their inflation expectations to personal experiences, and following home prices is practically a sport in Canada. Households also tend to overweight inflation expectations toward experiences that reflect extreme movements. This may condition household expectations to be even more sensitive to upside shifts in prices than when inflation was quite a boring affair.

So why cut rates at all if inflation isn’t yet at the desirable level? The bank must remain mindful of the financial risks that flow out of leaving rates too high for too long. And the breadth of consumer items driving core inflation metrics should be comfortably narrowing, a trend that started 18 months ago.

Central bankers will need to trust the process and start cutting interest rates, while also convincing the public that they know what they’re doing. The first will encompass a bit of a leap of faith, because there’s always embedded forecast error from known and unforeseen events. The second will require a pivot in communication on why shelter costs do not define the inflation universe for Canada.

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Popular demand

Farah Omran, senior economist, and René Lalonde, director of modelling and forecasting, Bank of Nova Scotia

Since the second quarter of 2020, actual consumption in Canada has been below Canadians’ desired level of consumption, our measure of households’ optimal consumption level based on factors such as income, interest rates and wealth. The gap between the two – a measure of pent-up demand – explains in, large part, how incredibly resilient the Canadian economy has been to the rapid rise in interest rates. Even as the Bank of Canada began raising its policy rates, the real rate – the nominal rate minus the expected inflation rate – remained negative and accommodative throughout 2022 as inflation roared. Only when real rates began to increase did pent-up demand begin to ease.

Despite that slowdown, our estimates suggest there is still a fair amount of pent-up household demand. That, together with still reasonably healthy household balance sheets and a record pace of population growth, suggests material downside risks to Canadian household spending are overblown.

We forecast pent-up demand to wind up by the second quarter of 2024, around the same time we expect the BoC to begin its rate-cutting cycle. The elimination of pent-up demand would reduce the risk of undermining the BoC’s efforts to tame inflation as it begins cuts.

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It’s a time thing

David Rosenberg, chief economist, Rosenberg Research

The six-month trend in the core personal consumption expenditure deflator, the U.S. Federal Reserve’s preferred inflation indicator, is now running a tad below target at a 1.9-per-cent annual rate. It was last there in September, 2020. As commentator Dandy Don Meredith would sing if this were a Monday Night Football telecast back in the 1970s, “Turn out the lights, the party’s over.”

We have also now learned the time dimension of “transitory” inflation: 18 months. In the annals of economic history, that’s a blip. This ain’t the seventies, folks. The thing is, the Fed always goes further than it thinks at the onset of easing and tightening cycles. But the tightening cycle is in the rear-view mirror, and the easing cycle is now staring us in the face.

U.S. Treasury yields are melting, and it’s not over. The 10-year Treasury-note yield at 4 per cent has sliced below its 200-day moving average, and there is nothing but dead air from here to a resting spot of 3.25 per cent. Mean-reverting the yield curve to the norm of the past 20 years (business icon Bob Farrell’s rule No. 1) says we are going to or below 3 per cent on the 10-year note. That would imply a total net-positive return of 15 per cent for 2024.

Even the high-flying and overextended stock market may have trouble keeping up with that performance.

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Don’t lag

Brett House, professor of professional practice at Columbia Business School, and a senior fellow with the Public Policy Forum, the Munk School, and Massey College

At its Dec. 13 meeting, the U.S. Federal Reserve executed its long-awaited pivot toward interest-rate cuts in 2024. The Bank of Canada also softened its policy stance in December, albeit in a more half-hearted fashion, in line with the European Central Bank and the Bank of England.

There should be little doubt, however, that the Bank of Canada will cut rates as quickly as the Fed – or faster. Economic decisions are driven by the real rate of interest: the nominal interest rate posted by the central bank net of inflation expectations. Canada’s real interest rate is high compared with its peers, but it’s also restrictive against Ottawa’s most recent estimates of the neutral interest rate – the rate consistent with stable inflation and full employment.

With real gross domestic product growth and inflation (excluding shelter costs) slowing more quickly in Canada than the U.S., the imperative to cut policy rates to avoid a hard landing is stronger here. If the bank’s cuts lag the Fed, the loonie would appreciate and sap growth further. So, discount the bank’s equivocations: It will match the Fed’s cuts in 2024, having been the first to hike rates in 2022 and the first to pause last year. And the ECB and Bank of England won’t be far behind.

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Economic growth and productivity

Let’s get real

David Doyle, head of economics, Macquarie Group

Our chart illustrates the severity of the cyclical downturn already under way within Canada, which is occurring within a period of significant structural underperformance. Real GDP per capita has already declined by 2.6 per cent from its peak. Unfortunately, we suspect this could fall further. We project an eventual peak-to-trough decline of nearly 6 per cent by the fourth quarter of 2024.

This would make the downturn experienced in 2023 and 2024 slightly more severe than the ones in the early 1990s and the 2008-09 great financial crisis. This softness should translate into a further rise in the unemployment rate, which has already climbed from its trough by nearly one percentage point. We expect it to rise a further 1.7 points in coming quarters and reach 7.5 per cent.

To make matters more concerning, this weakness follows after a decade in which Canada’s real GDP per capita stagnated and dramatically underperformed that of the U.S. and other developed countries. Sadly, the tide doesn’t appear set to turn anytime soon. The IMF projects Canada to have the weakest real GDP per capita growth in the G7 over the next five years.

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Housing booms, productivity busts

David Wolf, portfolio manager, Fidelity Investments

Living standards in Canada (as measured by GDP per capita) are now falling, as the long downtrend in economy-wide productivity growth has intensified. For decades, Canadian economists have struggled to explain Canada’s poor productivity performance. One factor that has not been given enough attention, in my view, is the role of Canada’s long housing boom.

National savings have been increasingly directed toward unproductive housing investment, rather than productive capital investment. That can’t help but compromise the economy’s productivity. Some of this owes to high rates of immigration. Newcomers can contribute much to productivity down the road, but they need housing right away, and many Canadian investors have profited from that demand. So, the resources of the economy have been directed toward housing, to the detriment of overall productivity.

Weaning the economy off its addiction to housing will hurt. But a better-balanced economy will be a more productive one in the long run.

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Output on the outs

Douglas Porter, chief economist, BMO

Canadian labour productivity, or output per hour worked, has fallen for six consecutive quarters. It’s now down slightly over the past four years, which compares current levels with those prevailing just prior to the pandemic. That’s the first time on record that productivity has dropped over a four-year stretch. And we can’t entirely blame the pandemic, as other economies have churned out moderate gains over that period. To be clear, productivity is not some obscure statistic that only an academic economist would be concerned about; it is the fundamental building block of prosperity.

Weak productivity is also an issue for the Bank of Canada’s inflation fight in 2024. With declining productivity, even moderate wage increases – in the range of 4 per cent to 5 per cent – will generate outsized increases in unit labour costs (wage costs per unit of output). Over the past year, these costs have jumped more than 6 per cent, the fastest rise in more than 30 years. In a word, this will keep underlying inflation pressures sticky, keeping interest rates high for longer.

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Really weak

Bill Morneau, federal finance minister from 2015 to 2020

As COVID-19 eases, Canada must revitalize its economic trajectory. Unfortunately, the facts are clear: Not only are we falling behind other countries, but we are on a path that could leave the next generation worse off than the current one. Real GDP per capita has been shrinking and we are producing less per person today than we were before the pandemic. The Organization for Economic Co-operation and Development projects that over the next four decades, Canada will have the lowest growth in per capita income among the 38 countries it measures.

Our lacklustre performance is an enduring challenge that needs to take centre stage for policy makers. This is clearly a collective problem. Our policies aren’t generating the incentives and the confidence to invest and grow. Our businesses aren’t investing enough in capital, innovation, and research and development. Government must make this our No. 1 priority with policies that attract investment, foster competitiveness and enhance productivity. Only by doing so can we ensure a resilient economy that creates a more prosperous society for our children.

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Mind the tech gap

Lisa Melchior, founder and managing partner, Vertu Capital

One sector is responsible for outsized economic growth: technology. Canada’s tech sector continues to deliver excess growth over all other sectors. However, when you look at its performance relative to the U.S., we are far behind. The U.S. has built global market-leading tech businesses, which are responsible for the country’s excess GDP growth.

Interestingly, when you exclude tech from the calculation, economic performance is the same in the two countries. Canada will not close the tech-GDP gap unless businesses and government continue to invest in this strategic sector and scale up global market leaders.

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Industry and investment

Weak in, weak out

Alan Arcand, chief economist, Canadian Manufacturers & Exporters

A considerable amount of attention has been devoted lately to Canada’s sluggish productivity growth and lagging standard of living. A prolonged period of weak business capital spending has been rightly identified as one of the main culprits behind our country’s lacklustre economic performance. A compelling way to highlight this pressing issue is by comparing investment per worker in the Canadian and U.S. manufacturing sectors.

Regrettably, the data paint a troubling picture: Non-residential business investment per worker in the manufacturing sector is more than three times higher in the U.S. than in Canada, and this disparity continues to widen. In 2022, manufacturing investment per worker was US$52,300 in the U.S., but only US$15,700 in Canada. With business investment so weak, labour productivity in Canada is languishing because workers are not being equipped with machinery, equipment and technology that would help them do their jobs more efficiently.

Governments must take stronger policy action, in partnership with industry, to boost private sector investment and productivity growth in Canada. Increased productivity often translates into higher wages for workers and greater earnings for businesses, both of which generate tax revenue needed to fund critical public services.

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Low investment, low wages

William Robson, CEO, C.D. Howe Institute

Business investment makes workers more productive and raises living standards. Investment in Canada had a good run after the mid-1990s, but collapsed after 2014. Measured against our labour force and adjusted for purchasing power, Canadian business investment rose relative to the U.S. and other developed countries until the early 2010s, when the average Canadian worker was receiving about 75 cents of new investment each year per dollar received by the average U.S. worker.

But data for 2023 show the average Canadian worker receiving only 57 cents of investment per dollar received by an average U.S. worker. Investment in non-residential structures is robust. But investment in machinery and equipment, and intellectual property products – the capital we look to for productivity and innovation – is alarmingly weak.

For every dollar of machinery investment per U.S. worker in 2023, the average Canadian worker got only 42 cents. For every dollar of investment in IP products per U.S. worker, the average Canadian worker got only 30 cents. Without more investment to complement our growing work force, Canada is on a path to an uncompetitive, low-wage economy.

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In need of demand

Stephen Brown, deputy chief North America economist, Capital Economics

The Bank of Canada is clinging to the idea that 5-per-cent interest rates are needed to get inflation back to 2 per cent, but it will soon have to acknowledge the grim reality that the economy has weakened far more rapidly than it expected. Third-quarter GDP growth in 2023 was negative, the unemployment rate has increased by a full percentage point since its pandemic low, and house prices are falling again. According to the Canadian Federation of Independent Business, the proportion of businesses suffering from insufficient demand has rocketed to its highest level since early in the pandemic.

Yes, inflation is still too high for comfort at around 3 per cent. But inflation always lags developments in the economy, and at Capital Economics, we are increasingly convinced it will fall back to the central bank’s 2-per-cent target this year. The bank needs to start cutting interest rates soon, or it risks a far more pronounced economic downturn than was ever needed to solve a problem that no longer exists.

Nothing ventured

John Ruffolo, founder and managing partner, Maverix Private Equity

With the disentangling of the global world order, the U.S. and China facing off in a Cold War for the digital age, and the emergence of protectionism over strategic technologies and raw materials, the technology industry faces a lot of uncertainty in the near term. Hence, the technology capital markets will remain volatile in 2024.

Except for the hot segments of the technology market such as generative AI, private market transaction activity will remain muted in 2024, but will be better than in 2023. Technology companies with strong balance sheets that used 2023 as an opportunity to significantly right-size their cash burn will be financed. There remains a significant amount of dry powder – funds sitting on the sidelines looking to make deals.

The Canadian IPO window will be closed for at least the next 12 months, except for companies that are viewed as ready and high-quality. Small-cap technology companies will continue to struggle to increase their market capitalization and more will be privatized in 2024. Meanwhile, acquisitions by foreign-based purchasers or buyout private equity funds will climb in 2024 as lower valuations and currency arbitrage make many companies look cheap to potential acquirers.

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Making a difference

Rory Johnston, founder, Commodity Context

The value of Western Canadian Select (WCS), Canada’s primary crude oil export blend, has oscillated considerably over the past year, and only the ever-delayed startup of the Trans Mountain Expansion Project (TMX) is likely to stabilize the price of Canada’s single most valuable export by nearly trebling the pipeline transport capacity to Canada’s West Coast.

WCS has been under price pressure owing to tighter capacity and limited flexibility in the face of a sharp maintenance season in the U.S. Midwest, which processes the bulk of Canadian crude exports. Capacity issues will only grow over the coming months as production that had been scheduled under the assumption that the pipeline would already be operational continues to come on stream. The Canadian oil market risks another blowout in the WCS discount like the one in 2018, when the difference between Canadian and global oil prices hit an all-time high of US$50 per barrel and vaporized billions in Canadian producer earnings and royalties for governments.

The startup of TMX should stabilize the situation in 2024 by increasing total takeaway capacity and providing valuable flexibility away from previously captive reliance on U.S. markets. But continuing construction issues and regulatory disputes continue to delay the project and increase the odds of critically overrunning pipeline capacity once again.

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Renewable power to the people

Marlene Puffer, chief investment officer, Alberta Investment Management Corp.

What a difference a year makes. This chart shows the percentage change in consumption by energy source in 2022 compared with 2021. While energy sources such as solar, wind and other renewables account for a small share of today’s energy mix, the double-digit increases are notable.

These energy sources are also expected to increase manyfold in the coming years as the global energy supply slowly evolves to less carbon-intensive sources over the long haul.

In 2024, we will continue to identify investment opportunities by closely tracking current and forecasted changes in the global energy transition we are witnessing. The decarbonization of the world’s economies will be a decades-long process, and this long-term trend is also creating opportunities in the short term as companies recognize they need to take action now. This action presents exciting immediate investment and financing opportunities for global investors. We will also be watching for the emergence of new technologies and energy sources, given the momentum behind the transition.

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Private equity, public care

Armine Yalnizyan, economist and the Atkinson Fellow on the Future of Workers

Private equity is growing fast and changing the face of investing. BlackRock estimates the total amount of private equity has almost doubled globally since 2019, standing at more than US$8-trillion by 2023. Private funds went on a buying spree in 2021, then pulled back with 2022′s soaring interest rates and volatile markets. But 2024 promises to unleash another burst of spending as their dry powder soared to an estimated US$2.5-trillion by mid-2023.

Where is all that cash headed? Slowing growth and uncertain supply-chain developments make the care economy (health care, long-term care and child care) a target, delivering sure growth owing to demographic factors and stable income flows as a result of public support.

Private equity plays often involve buying small operators, creating chains that generate efficiencies through scale and vertical integration, and/or stripping out real estate values. That pattern is unfolding in the care sector in Britain, the U.S. and Australia. You can bet it’s coming here, too. More private equity in the care economy is the trend I’ll be watching in 2024.

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Housing

Gimme shelter

Brian Yu, chief economist, Central 1

Canada’s housing supply crunch has found some relief with a resilient pace of housing starts. While by no means enough to offset underlying population growth, at an annualized pace of about 250,000 units in recent quarters, the trend has defied the typical housing downturn that normally follows reduced resales, which have crumbled with high mortgage rates.

Is this a sign that developers continue to build to meet underlying demand? We do not believe this is the case, and we are watching for a significant decline in 2024. While urban-area starts were down 7 per cent from January to October last year, led by British Columbia, construction has been supported by flat multifamily building, while single-family homes declined 28 per cent. However, multifamily construction reflects decisions made two to four years ago, when presales and financing conditions were favourable. A turn is expected, given weaker presale trends, affordability challenges and pandemic demand retreating.

For all the talk about boosting housing supply through policies such as Goods and Services Tax exemptions, rezoning and investments in affordable housing, construction will be dictated by weak market conditions and financing challenges. Government policies won’t be enough to offset weakness in private investment. With underlying demand from a growing population still robust, Canada’s housing supply challenges could very well get worse in the near term, before improving when interest rates decline. We see prices remaining high and affordability for buyers low in coming years.

Declining construction will also have implications for inflation, as pressure on the shelter index persists while supply constraints continue to drive rents higher and put a floor under home prices.

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Fear the resets

Phillip Colmar, global strategist, MRB Partners

Canada has a widespread housing affordability crisis owing to sky-high home prices and the surge in mortgage rates. The Bank of Canada’s housing affordability index is now at its worst reading since the early 1980s.

The even larger concern is the household debt underpinning home prices. Mortgage debt is now almost 140 per cent of disposable income and total debt is a whopping 180 per cent – substantially more than the U.S. before the housing bust that helped trigger the financial crisis. Canadian homeowners did not have the same ability to lock in low mortgage rates for 30 years, and many can no longer service their debts once their mortgage rate is reset higher. A crisis is already brewing, despite the still-solid job market.

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Don’t fear the resets

Derek Holt, vice-president and head of capital markets economics, Scotiabank

The coming wave of fixed-rate mortgage resets in Canada will have limited and manageable macroeconomic consequences. It will not be a big enough shock on its own to motivate the Bank of Canada to cut interest rates in the near term. I’ve previously calculated that mortgage payments will rise by a cumulative 1 per cent of total income of all Canadians with and without mortgages (40 per cent and 60 per cent, respectively) from 2022 to 2026, even assuming no income growth. More recent estimates by the Bank of Canada point to an average annual increase in mortgage debt payments as a share of the pretax income of the median borrower of about 0.7 per cent a year, assuming no income growth and reasonable rate assumptions.

Assuming modest growth in incomes whittles this down to about 0.25 per cent a year. Households are also mitigating payment shock by extending amortization periods and tapping into strong home-equity gains since the start of the pandemic. Some borrowers will be hit hard, but in a macroeconomic sense, mortgage resets are like a mirage – an apparent danger from afar, but far from a serious danger in reality.

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House poor

David Williams, vice-president of policy, Business Council of British Columbia

The chart shows the three-year change in residential mortgage credit outstanding (excluding home equity lines of credit) in nominal and inflation-adjusted terms. From 2020 to 2023, mortgages secured against housing expanded by around $450-billion (roughly 27 per cent, from about $1.6-trillion to $2.1-trillion). Is it any wonder that resale home prices exploded relative to incomes? Even in real terms, the increase was on par with the run-up to the 2008-09 global financial crisis.

Underpinning the credit expansion were ultralow interest rates (in fact, real mortgage rates were negative from 2021 to 2022), quantitative easing and the Bank of Canada’s July, 2020, forward guidance assuring mortgagors that “rates will be low for a long time.” Mortgages will renew at significantly higher interest rates from 2024 to 2026, and a deleveraging cycle appears to be under way. Policy makers would be wise to consider that rising (rather than falling) productivity and GDP per capita would help make the deleveraging process less painful.

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Down homes down east

David Chaundy, president and CEO, Atlantic Economic Council

Population growth is exceeding new housing construction in Atlantic Canada. As a result, the region has accumulated a 25,000-unit housing deficit over the past two years. This may deter new migrants and hamper economic growth if it isn’t resolved.

This housing deficit might not be eliminated until 2030, even with improving trends, as shown in the chart. Our scenario assumes robust population gains continue to 2030, but at a slower rate than in the past couple of years. We also assume housing starts will pick up from an annual average of 12,500 to about 16,000 a year. And there is a lag between housing starts and completions, which can be 18 to 24 months for large multiunit buildings.

This required increase in residential construction will be challenging owing to current high borrowing costs, inflationary pressures and labour shortages. Construction job vacancy rates in the Maritimes averaged 8 per cent in the third quarter of 2023, well above the 5-per-cent vacancy rate for all industries.

All levels of government are trying to accelerate development, especially of affordable housing. However, to support a growing population, stakeholders need to plan and collaborate better to ensure that housing, along with other critical infrastructure and services, is adequate.

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Up, up and away

Matt Lundy, economics reporter, The Globe and Mail

Canada’s rental market has a problem: So much demand, so little supply. Rents have jumped 21 per cent over the past five years, according to Statistics Canada’s flagship inflation report, coinciding with some of the country’s fastest population growth in decades.

“When a country’s population is growing quickly, the supply of housing also needs to increase to avoid a worsening in affordability,” Bank of Canada deputy governor Toni Gravelle said in a recent speech. Well, it’s not increasing nearly enough. There’s a fundamental disconnect between population growth and the lacklustre addition of new housing units. Without a drastic change – either on the supply or demand side – rents will continue to climb higher.

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Home truth

David Macdonald, senior economist, Canadian Centre for Policy Alternatives

Across every region in the country, workers’ wages are not keeping up with the cost of housing. There is no major city in Canada where a minimum-wage worker can afford to rent a two-bedroom apartment without spending more than 30 per cent of their full-time income on it.

In Toronto and Vancouver, two minimum-wage earners together still couldn’t comfortably afford such an apartment. Two minimum-wage workers in Calgary would just squeak past the threshold. Even Montreal – a relative bastion of rental affordability owing to Quebec’s imperfect system of rent control – falls short.

The cost of housing is a hot potato for all levels of government. Every politician wants convey the impression that they’re tackling housing affordability, but none want to take politically unpopular measures that would reduce homeowners’ equity. They are trying to have their cake and eat it, too; meanwhile, renters are starving.

High interest rates worsened the situation in 2023, as landlords passed on higher mortgage payments to tenants through record rent hikes. The issue shows no signs of slowing down in 2024.

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Big trouble in China

George Pearkes, macro strategist, Bespoke Investment Group

China’s property-market collapse continues. Nominal investment in property hit the lowest levels since 2017 at the end of 2023, dropping 31 per cent from its peak. For China’s domestic economy alone, the results have been devastating. Annual retail sales growth has been cut in half, to 5.5 per cent.

Hopes of a reopening after zero-COVID restrictions have not helped: In the six months ended October, nominal retail sales rose 3.3 per cent annualized, even slower than the overall period since December, 2020. Until there is large-scale debt restructuring and change in the land-sale-dependent revenue model of local governments, we see no end in sight.

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Under construction

Paul Beaudry, former Bank of Canada deputy governor and professor of economics at the University of British Columbia, and David Green, professor of economics, UBC

Housing affordability and housing accessibility have been growing problems for Canada. One potential factor that may limit housing construction is the availability of construction workers. However, as can be seen in the chart, employment in the construction industry has been growing strongly for more than a decade, and has accelerated over the past two years.

The growth is apparent in terms of the number of employees (from one million in 2006 to 1.5 million in 2023) and as a share of the active population (from 5.1 per cent to nearly 6.8 per cent over the same period). Recent immigration has played only a secondary role in the increase in the number of construction workers, since most of the growth has been among individuals born in Canada. As we move into 2024, it will be interesting to see if this growth can continue, as many of the current policy efforts to favour more construction depend on it.

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Markets

History lesson

Alexander MacDonald, portfolio manager, GlobeInvest Capital Management

It is widely believed that the Bank of Canada will begin cutting its key policy interest rate at some point in 2024. On one hand, this could be bullish for equities, since lower rates increase the present value of a company’s future cash flow. On the other hand, rate cuts frequently accompany a slowing economy, which would mean slowing revenue growth for these same companies.

This chart illustrates what history has to say on the matter. It shows the median performance of the S&P/TSX Composite Total Return Index around the start of Bank of Canada rate-cutting phases since 1981. While equities typically sold off just before and just after the first rate cut, this underperformance didn’t last long. By the end of 52 weeks following the initial cut, the index had bounced back significantly.

Given that this market volatility happened in the span of just a few weeks, this shows just how difficult – or perhaps impossible – it is to time the equity markets by anticipating the actions of central banks.

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Agree to disagree

Tara Iyer, chief North America macro strategist, BlackRock

During the Great Moderation, the 1980s-to-2007 era of stable economic growth and inflation, U.S. equity analysts’ views of expected earnings of S&P 500 Index companies were much more grouped together, outside of major shocks. Now, analysts are having a harder time reading the earnings outlook and their estimates are more dispersed.

We see more scope to outperform the market now than in the less volatile Great Moderation. Exposures to macro risk can be punished as well as rewarded, so we think investors should be deliberate about which exposures they take.

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Yields, bond yields

Luke Kawa, asset allocation strategist, UBS Asset Management

The top economic question at the start of 2024 is a bit of cliché: Will there be a recession this year or not? To us, a much more interesting line of questioning is: How much has the economic backdrop really changed since 2019, and are the major shifts in inflation and activity since then persistent or not?

The bond market can help shed light on that. This chart shows market-implied expectations of what U.S. and Canadian five-year government bond yields will be in five years’ time, as well as the difference between these borrowing costs. Should these rates move sharply lower this year – which is not our base case – this would likely be associated with a recession in both economies. Instead, we expect a relatively modest decline, which would be consistent with a soft landing.

Under this relatively optimistic view, we would expect nominal growth rates (and bond yields) in the U.S. and Canada to be above levels seen in the decade following the 2008-09 global financial crisis, but below levels that prevailed in the 20 years before that. That would be a change after four decades in which government bond yields hit fresh lows every economic cycle.

We also note that markets currently price in a similar gap between where U.S. and Canadian five-year yields will be in five years’ time as they did in 2019. This signals relatively limited concern so far about the potential for a made-in-Canada downturn, despite Canadian consumers being much more interest-rate sensitive than their U.S. counterparts.

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Fasten your seatbelts

Karl Schamotta, chief market strategist at Corpay

Last year defied much of what we know – or think we know – about how interest rates affect economies and markets. Seemingly ignoring the pull of one of history’s most aggressive monetary tightening cycles, global growth proved far more resilient than expected, asset prices kept climbing and exchange rates remained remarkably unmoved. As the year ended, consensus forecasts suggested that a soft landing is ahead, with implied volatility in equity and currency markets plumbing lows last reached just before the pandemic hit in 2020.

But the laws of economic gravity have not been repealed. The after-effects of the largest increase in borrowing costs in more that four decades are only beginning to be felt, the changes unleashed by the pandemic are still reshaping fundamentals and policy uncertainties are set to rise as the U.S. election cycle nears completion. We expect a series of dislocations in financial markets – and in the Canadian economy – through 2024, as the global economy breathes increasingly rarefied air. The loonie’s recent stability won’t last.

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Priced for perfection

Mark Wisniewski and Etienne Bordeleau-Labrecque, Ninepoint Partners

Whether we’re heading into a recession or a soft landing, only time will tell. What we do know is that cracks are appearing in credit. Default rates on the riskiest household and corporate debt are moving higher. Take the U.S. high-yield bond market as an example. Standard & Poor’s and Moody’s both expect default rates to more than double this year, reaching 5 per cent, from the lows of less than 2 per cent a couple of years ago.

Nonetheless, current credit spreads for high-yield bonds (compensation against the risk of default) are at levels last seen in 2021, when the economy was flush with fiscal stimulus, quantitative easing and zero interest rates, leaving little compensation for rising defaults and lower recovery rates.

Given the geopolitical and macroeconomic uncertainties we face in 2024, high-yield bonds are priced to perfection. Within fixed income, the best trade remains high-quality corporate bonds, which have low default risks. And with a deeply inverted yield curve, short-term bonds (under three years) are the best bet, generating higher income with much less volatility than long-term issues.

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Better off

Tabatha Bull, president and CEO, Canadian Council for Aboriginal Business, and John McKenzie, CEO, TMX Group

Over the past five years, companies that achieved Progressive Aboriginal Relations (PAR) certification have outperformed the broader stock market by 80 basis points on an annualized basis.

The Canadian Council of Aboriginal Business’s PAR certification is a corporate social responsibility program with an emphasis on Indigenous relations. Companies that participate in the program commit to being good partners with Indigenous communities across several criteria, and their performance is assessed by an independent jury composed of Indigenous business people.

TMX Group, CCAB and VettaFi developed the VettaFi Canadian Council for Aboriginal Business Index, which tracks the performance of PAR-certified companies. Its outperformance compared with the VettaFi Canada Large/Mid Cap index over roughly five years highlights the fact that Indigenous inclusion and reconciliation are not a compromise – doing better helps us all do better.

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Buy Canada, really

Anthony Scilipoti, president and CEO, Veritas Investment Research

Saying “Buy Canada” appears to fly in the face of recent experience, especially after strong U.S. stock returns in 2023. However, investors looking for good opportunities at better prices should consider buying domestically in 2024. Our chart illustrates that, based on relative valuations over the past 20 years, investors are now being paid far more to hold Canadian stocks versus their U.S. counterparts.

Our conclusion is based on the concept of equity risk premium: the difference between the amount investors can earn holding equities versus long-term, fixed-return bonds. The chart shows the difference in equity premiums between Canada and the U.S. Historically, investors have typically required 0 per cent to 1 per cent more to hold Canadian equities versus their U.S. counterparts. After 2018, the difference ballooned to more 3 per cent, and now sits at 2.6 per cent. This is despite similar expectations for 2024 earnings growth for the S&P/TSX Composite and S&P 500 indexes, which sit in the low teens for both. In 2024, the risk-return balance has shifted in Canada’s favour.

As always, we recommend holding a concentrated basket of companies with healthy balance sheets, sustainable cash flows, transparent accounting and strong corporate governance. But it is also important to get the starting point correct; for the coming year, that might mean buying closer to home.

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Bond breakthrough

Lawrence Schembri, former deputy governor of the Bank of Canada

Indigenous communities in Canada historically have struggled to gain access to market finance to build the public infrastructure needed to attract private investment, promote economic development and raise living standards. This chart shows a path-breaking accomplishment for Indigenous access to finance. Debentures issued by the First Nations Financial Authority (FNFA), which are used to fund public infrastructure projects in First Nations, now carry lower spreads than the average Canadian municipal bond. Like municipalities, FNFA debentures are collateralized by future streams of own-source revenue, mostly from taxes.

The FNFA was established by Ottawa in 2005, and since 2014, it has issued nine debentures, totalling $1.65-billion. The 10th debenture will be issued this year. Spreads on FNFA debentures were initially higher than those on the average municipal bond, but over time their credit ratings steadily improved, and spreads declined because there were no late payments or defaults. Given this success, 153 First Nations out of a total of more than 600 in Canada are members of the FNFA and more are joining each year.

The FNFA has received awards for financial innovation and will continue to play a critical role in helping to close the large infrastructure and income gaps that exist for Indigenous communities, to the benefit of all Canadians.

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Population and immigration

Unprecedented

Mikal Skuterud, professor of economics, University of Waterloo, and Parisa Mahboubi, senior policy analyst, C.D. Howe Institute

Recent years have seen an unprecedented increase in Canada’s non-permanent resident population, far surpassing increases in annual admissions of new permanent residents.

The unbalanced growth in Canada’s temporary and permanent migration inflows will inevitably result in a growing undocumented population and forced deportations. Both developments risk inflaming Canada’s immigration politics and undermining public confidence in the immigration system. In 2024, we will be watching for the surge in Canada’s NPR population to stabilize.

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Stacking up

Ben Rabidoux, founder at Edge Realty Analytics and North Cove Advisors

Canada’s population grew by a whopping 1.2 million people in the past year despite a federal immigration target closer to 500,000. The discrepancy comes from the fact that non-permanent residents are not included in the federal immigration target and have not been subject to any meaningful restrictions or caps. So, the number of temporary workers and international students grew by 800,000, or nearly 50 per cent, in 2023 alone.

It’s important to understand the incentives at play here: Large corporations want cheap labour from temporary workers, while postsecondary institutions want to charge much higher tuition to international students – in some cases, five times more than Canadians. And that’s not even getting into the proliferation of seedy for-profit diploma mills that have sprung up across the country. The result has been an excessively tight rental market that disproportionately hurts low-income Canadians and puts non-permanent residents at risk. (Who can forget the headlines of international students living under bridges?)

Canada is a welcoming country, and I believe Canadians still support thoughtful immigration policies, but if current governments were actively trying to stoke anti-immigration sentiment, their efforts would be indistinguishable from current policies.

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Extreme times

Stéfane Marion, chief economist and strategist, National Bank of Canada

Immigration is becoming a sensitive issue in Canada as the impact of rapid population growth is being felt in many sectors of the economy, particularly housing and public services. While it’s true that an aging population in most OECD economies threatens potential future GDP growth, the question is how much we want to bring immigration policy forward to address this threat. As this chart shows, Canada’s population growth rate near the end of 2023 was 3.2 per cent, five times higher than the OECD average. What’s more, all 10 provinces grew at least twice as fast as the OECD, ranging from 1.3 per cent in Newfoundland to 4.3 per cent in Alberta.

We don’t deny that immigration improves Canada’s supply of workers and taxpayers, and that it strengthens our economic prospects in the long run. However, our country’s current population growth appears to be extreme in relation to the absorptive capacity of the economy and the fact that our work force is not aging faster than the OECD average.

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Policy

Hunger game

Geranda Notten, professor of public and international affairs, University of Ottawa

Later in 2024, Statistics Canada will release food security numbers for 2022, showing the share of Canadian families that experienced food insecurity that year. It will likely show that an increasing number of households had to make difficult choices in a year when inflation – in particular prices for food and shelter – jumped at the fastest pace in years.

While Canada’s inflation rate began to slow in 2023, prices won’t go back to what they were before inflation exploded. That means the purchasing power of households won’t catch up any time soon.

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Clarity, please

Trevor Tombe, assistant professor of economics, University of Calgary

In a bold move that could redefine Canada’s financial landscape, Alberta’s provincial government is considering leaving the Canada Pension Plan. And it hopes to take a staggering $334-billion with it, which is over half the total fund. This audacious claim stems from flawed analysis that presumes Alberta contributions were earmarked for Alberta benefits, rather than pooled within a single national plan. My analysis paints a very different picture, with Alberta entitled to about 20 per cent of the fund, or roughly $120-billion.

Unfortunately, the law is not clear. To help clarify matters, the federal government has asked the Chief Actuary of Canada to weigh in. We’ll likely get that answer this year. The outcome will not only determine the fate of a potential Alberta pension plan, but will also have far-reaching implications for the CPP. For the millions of Canadians who currently rely on the CPP for their retirement security, and the millions more who will in the future, this is the chart to watch.

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All together now

Eric Lascelles, chief economist, RBC Global Asset Management

Once the will-it-or-won’t-it recession soap opera is finally resolved, there’s a good chance the market’s attention will pivot toward the enormous government deficits being recorded around the world. There is nothing normal whatsoever about unsustainable deficits on the order of 4 per cent to 8 per cent of GDP, and these are likely to induce indigestion over time as debt-servicing costs mount.

The bitter medicine is a multiyear period of growth-depressing fiscal austerity. Domestically, despite other problems, including atrocious productivity growth and poor housing affordability, Canada is actually in a much better fiscal position than most countries.

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Bending the curve

Andrew Leach, energy and environmental economist, professor, University of Alberta

For the first time since Canada started making climate-change commitments, we’ve got a plausible chance to meet a target, and it’s our most aggressive target ever. At the 2021 climate conference in Glasgow, as the world was emerging from the pandemic, Canada committed to reduce emissions to between 40 per cent and 45 per cent below 2005 levels by 2030. The policies in place today (2023 Reference Case) won’t get us close. But, with all of the measures currently in development (2023 Additional Measures Case) and credit for domestic land-use changes, we’re almost on track.

The progress that Canada has made since 2015 in bending our emissions curve is nothing short of dramatic. But, keeping that progress will require commitment to policies we have in place today and more stringent federal and provincial initiatives as well. Net zero by 2050 is not out of reach, but we won’t get there with exemptions, weakened policies and growth of emissions-intensive industries.

This year is crucial for climate policy in Canada, with federal regulations on electricity generation, oil and gas emissions, and new-vehicle fleet emissions intensity due to be finalized. Without these or similarly stringent policies, Canada’s emissions curve will only flatten when we need it to bend further to meet our climate-change targets.

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Buffering …

Carolyn Wilkins, senior research scholar, Griswold Center for Economic Policy, Princeton University

Access to reliable broadband and mobile LTE may seem like a given to many Canadians, but that depends on where you live. The trouble is that many people in rural areas do not have high-speed broadband, and if you’ve travelled on any major highway in Canada, you’ll know about the spotty cellular service.

Digital access is not a “nice to have,” and we must do better. Plenty of studies show that digital access enhances productivity. It’s also one practical way to help level the playing field in terms of access to markets, giving real options for families and businesses to thrive outside of (expensive) major urban centres, and for rural communities to harness technology (think telemedicine and online education).

When measuring success, however, we must not stop there. I’ll be watching for an update to the Coalition for a Better Future’s scorecard, through a research partnership with the University of Ottawa’s Telfer School of Management, due out this March.

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Free the trade

Timothy Lane, economic consultant, former deputy governor of the Bank of Canada

Much of the income Canadians earn comes, either directly or indirectly, through international trade. In this global environment, that task is becoming increasingly difficult. The number of trade restrictions and other interventions that harm trade worldwide has gone up sharply in recent years, with little action to liberalize trade. This is happening against the backdrop of heightened geopolitical stresses, with the world increasingly fractured into blocs.

In addition, supply-chain problems stemming from the pandemic have led to calls for reshoring and friend-shoring for the sake of risk management – though, ironically, supply chains have actually lengthened as companies have reconfigured them to circumvent China.

Fortunately, global trade has not been declining, but trade deepening is no longer the engine of global growth it was at the beginning of this century. In this context, Canada’s trade has been harmed by some 3,800 restrictive trade measures that other countries have introduced in the past 15 years, while Canada has implemented about 950 new trade-distorting measures of its own.

Trade has long been a source of competition and efficient specialization for Canada, and stalling international trade is surely contributing to our dismal productivity and weak per capita GDP.

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Decision time

Frances Woolley, professor of economics, Carleton University

About one-third of women over age 90, and a quarter of men, are living with Alzheimer’s or another form of dementia. These diseases create immense suffering for people who gradually lose their minds, and for caregivers who gradually lose their loved ones. The diseases are expensive, too, costing billions in long-term care.

There is no cure for dementia, but there is an escape route: medical assistance in dying. Yet just 1 per cent of people who chose MAID in 2022 had some form of dementia. Although many of us would, given the choice, prefer a painless and dignified early exit, we often do not have the choice: The dementia diagnosis comes after we have lost our ability to make informed decisions.

For this reason, every province needs to implement regular dementia screening immediately. We might not be able to cure Alzheimer’s any time soon. But with early diagnosis, we do have a way of ending suffering.

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AI

AI adoption by companies

Viet Vu, manager of economic research, and Angus Lockhart, senior policy analyst, the Dais at Toronto Metropolitan University

Last year saw a surge of hype from breakthroughs in artificial intelligence, with ChatGPT seemingly sweeping through the world, and many onlookers predicting it would cause large and immediate shifts in the economy. But this reality might be further away than many analysts thought. By the beginning of 2022, just 4 per cent of Canadian businesses with at least five employees had adopted AI, a slight uptick from 2019′s 2 per cent. More recent data from the U.S. also support the simple fact that AI is not yet common in businesses.

While this means it’s too early to panic about AI’s potential to fully disrupt the economy, we do need to start planning for its impact on people. In fact, the number of people already exposed to AI is likely higher than the 4-per-cent adoption rate suggests. One in five companies with at least 100 employees has adopted the technology, exposing a significant share of workers and consumers to AI. This trend underscores the importance of setting out a framework and policies that encourage and incentivize responsible uses of AI, while regulating and limiting irresponsible uses of the technology that hurt workers and people.

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Humans need not apply

Brendon Bernard, senior economist, Indeed.com

Canadian job postings on Indeed were 17 per cent above their prepandemic level in early December, but down 32 per cent from their peak in May, 2022. Most sectors have experienced declines, consistent with the cooling macroeconomy. However, looking ahead, the potentially transformative arrival of generative artificial intelligence (GenAI) will impact some jobs more than others.

We grouped occupations by their exposure to GenAI, based on ChatGPT-4′s own stated ability to perform the skills listed in their job descriptions. In 2023, occupations with high exposure to GenAI (21 per cent of total postings, including jobs in tech, marketing and finance) fell slightly faster than others. But after a weaker performance in 2022, postings in high-exposure occupations were below their prepandemic level in December, while moderate and low exposure occupations (55 per cent and 24 per cent of postings, respectively) were still up, the latter boosted by health care fields.

The drop in white-collar job postings since the arrival of ChatGPT-3 is likely mostly a coincidence. In fact, several of these knowledge occupations have been key contributors to Canadian job growth since 2019. However, with prospective productivity gains in a wide range of tasks, from customer service to coding, the impacts of GenAI on labour demand will be worth tracking closely.

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The search for artificial intelligence

Danielle Goldfarb, consultant, senior fellow at the Centre for International Governance Innovation and strategic adviser to Mila (Quebec AI Institute)

The most important indicators to watch will be those that help us understand the adoption and impacts of artificial intelligence. This is not easy to measure and not factored into our economic models. This chart zeroes in on one aspect of AI adoption: online search interest for ChatGPT. The chart shows the relative search interest for three topics: ChatGPT, Netflix (one of our biggest time-wasters) and Excel (a common productivity tool).

There was a rapid acceleration in search interest in ChatGPT in the fall. This gives us an indirect indication of the rapid pace at which Canadians are embracing generative AI tools. And, in contrast to other AI systems that require more specialized knowledge, generative AI tools such as ChatGPT can be used by anyone.

The pace and widespread nature of adoption matters because generative AI, and AI more generally, will impact everything from the nature of our jobs to inequality to our living standards. One recent U.S. study showed that consultants who use ChatGPT-4 had 40 per cent higher-quality results compared with those who don’t use it. And below-average performers, rather than star performers, had the biggest productivity gains. We are in for a very disruptive period.

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