It may be a world away and pale in comparison to the human toll, but Russia’s decision to invade Ukrainian territory this week will have many direct and indirect impacts on Canada’s economy.
The most obvious one is on the price of oil. Russia is an energy superpower, and the prospect of Russian exports of energy products like crude oil and natural gas being limited is weighing heavily on markets.
The European oil benchmark, Brent crude, topped $105 a barrel on Thursday, its highest level since 2014. The predominant North American oil blend, West Texas Intermediate, wasn’t far behind, changing hands just shy of $98 a barrel at one point on Thursday.
Short of military intervention, threatening to limit Russian energy exports would be the most powerful weapon that NATO has at its disposal to convince Putin to end his incursion into Ukraine, but because Europe is just as dependent on Russia for oil and gas as Russia is on the revenue from selling it, experts think there’s little chance of that happening.
“The White House has gone to great lengths to convey that it will not target the Russian energy sector and exacerbate an already tight supply situation,” commodity analyst Helima Croft with RBC Capital Markets said in a note to clients early Thursday.
“Though there have been no physical supply disruptions yet, there are serious concerns that Russia could move to restrict commodity exports in response to U.S. sanctions.”
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Russia currently pumps about 10 per cent of the world’s supply of crude oil every day.
Ordinarily, one energy giant turning off the taps would open the door to another opening them, but that’s unlikely to happen with Canada because pipeline and export capacity for oil and natural gas are already stretched to their limit, said Eric Nuttall, a partner and portfolio manager at Toronto-based investment firm Ninepoint.
“That’s an impossibility,” Nuttall said in an interview of the prospect of Canada boosting oil exports to take some leverage away from Putin.
Despite sizeable energy resources in Canada’s oilsands and U.S. shale, Nuttall says the decision years ago to limit pipeline expansions have limited North America’s ability to export as much oil as possible, to the point where both Canada and the U.S. still import oil from overseas.
According to the Canadian Association of Petroleum Producers, Canada imports roughly $550 million worth of crude oil a year from Russia, most of which is consumed in Eastern Canada.
And Nuttall says the U.S. imports even more than that.
“They’re basically contributing $66 million a day into the Russian coffers to empower them to launch cruise missiles into Ukraine when they had a safe and reliable supplier to the north,” he said of the Biden administration’s decision to kill the Keystone XL pipeline once and for all.
Oil prices are headed higher in the short term because of the uncertainty, but a long term military conflict in the region would be a negative for oil prices over the long term because it would slow down the global economy, said Barry Schwartz, chief investment officer at Baskin Financial.
“No one should be giddy about oil,” he said in an interview. “It’s possible that oil prices continue to rise as world events continue to be uncertain, but ultimately if [the] invasion continues, if it worsens, the economies around the world are going to slow dramatically and that is a terrible scenario for oil.”
Higher food prices
Energy may be the most direct impact, but global food markets will be affected, too. Often called the “breadbasket of Europe,” Ukraine is a major global supplier of crops like corn and wheat, and Russia is not far behind.
Combined, the two countries produce about 25 per cent of the world’s supply of wheat, and Croft at RBC says those supplies are now in doubt because of Russian aggression.
“Given the recent Russian Black Sea naval deployments, we think there is a considerable risk that Ukraine’s ports may be inoperable,” Croft said.
As a major wheat exporter, Canada will feel that part of the conflict directly.
“If Europe is not able to get Ukrainian wheat, they’re going to be looking for some somewhere else,” said David Quist, executive director of the Western Canadian Wheat Growers Association, in an interview.
“If Ukraine, which is a major grower exporter, is not producing this year, there’s going to be a global shortage. And so that will cause prices to rise.”
WATCH | How conflict in Ukraine will impact wheat prices in Canada:
Ukraine conflict could cause wheat price to spike, food prof says
9 hours ago
Duration 1:27
With Russia and Ukraine being major exporters of wheat, people can expect the price of wheat to go up and for buyers to shift their purchasing toward other markets, says the University of Saskatchewan’s agricultural economics professor Richard Gray. (Photo credit: Orlin Wagner/The Associated Press) 1:27
They already are. Wheat prices have risen by 15 per cent in the past month alone, on the assumption that two of the world’s biggest wheat crops may be unreliable in the short term at least, and potentially the long term, too.
“If it’s a prolonged war and there it’s disrupted, it could disrupt production for this spring or in coming years,” said Richard Gray, a professor of agricultural economics at the University of Saskatchewan.
Higher prices for wheat may be good news for farmers, but it means consumers in Canada and abroad should brace themselves for even higher food prices to come.
Gray says a loaf of bread may contain only about 40 or 50 cents worth of wheat, “so the impact won’t be very large directly, but indirectly you’re going to see some increase in cereal prices, some increase in other food products.”
Inflation and rate hikes
Higher food prices are one of the biggest factors that have been driving up inflation to multi-decade highs lately, a trend that central banks were on track to imminently tackle by raising their interest rates.
While rate hikes are still expected, the sudden outbreak of war in Ukraine has changed the plans a little, economist Royce Mendes with Desjardins says.
The Bank of Canada is set to announce its latest interest rate decision next Wednesday, and it is widely expected to raise its benchmark rate by at least a quarter of a percentage point, to 0.5 per cent.
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“Rock bottom interest rates seem inconsistent with elevated levels of inflation, so we expect the normalization process for interest rates to begin in the next few weeks and actually continue at least gradually throughout the year,” Mendes said in an interview.
“But there are certainly more question marks about that process than there were just a few days ago.”
While expectations of how many hikes are coming and how fast are lower today than they were just 24 hours ago, investors in both Canada and the U.S continue to expect about a half dozen rate hikes in Canada and the U.S. by the end of the year, trading in investments known as swaps suggest.
Not even the shocking prospect of a military conflict in Europe is likely to compel central bankers to deviate from their plans to rein in inflation, but the path forward is still anything but certain — so Canadian consumers should brace themselves for uncertainty from this conflict a world away.
“A conflict that can seem so far away at times for many Canadians might hit home in terms of the prices they’re paying for everyday goods,” Mendes said.
“We should expect that we’re going to see higher prices at the pump and potentially higher prices at the grocery store as a result of this conflict.”
A worker walks along an access platform at the Gazprom facility in Siberia. As a major world supplier of oil and natural gas, the Russian invasion of Ukraine will have a global impact on energy markets. (Andrey Rudakov/Bloomberg)
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
