Justin Trudeau’s government has had to weather many storms over the last eight years.
The SNC-Lavalin controversy. An old yearbook photo with the prime minister in blackface. Multiple ethics violations. The COVID-19 pandemic.
But as the governing Liberals continue to slide in the polls, the slow-moving hurricane that may actually end up blowing them away appears to be the economy.
For many, the pandemic has receded into little more than a bad memory. But the economic domino effect it touched off lingers on, wreaking electoral havoc on incumbent governments around the world.
High inflation and interest rates have left people feeling worse off, even as the Canadian economy outperforms expectations in many ways.
Polls suggest the governing party is badly trailing the Conservatives. Cost-of-living issues are dominating federal politics and a resurgent Tory party is placing the blame for the erosion of affordability squarely on Trudeau’s shoulders.
When did things start going so wrong for the Liberals?
Support for the Conservatives took off this summer, just as the Bank of Canada began raising interest rates again after pausing its rate-hiking cycle earlier in the year.
“That was when people were starting to cycle through the first wave of mortgage renewals,” said Tyler Meredith, a former head of economic strategy and planning for Finance Minister Chrystia Freeland.
Canadians renewing their mortgages this year are seeing higher monthly payments as they pay more in interest to finance their homes. That leaves less money on the table for everything else.
The federal government doesn’t actually set interest rates, but data suggest a close correlation between the Bank of Canada’s rate hikes and the bottom falling out of public support for the Liberals.
Even before this year’s spike, Abacus Data polling at the time suggested the Conservatives first started to overtake the Liberals after the central bank’s first post-pandemic rate hike in March 2022.
“I do think that was a turning point,” said David Coletto, the CEO of the Ottawa-based polling and market research firm.
A range of polling indicators have turned against the Liberals since then, he added.
For months, the federal government has faced relentless scrutiny, partisan and otherwise, for its perceived role in the affordability crisis.
Some economists accused Ottawa of spending too much in the face of soaring inflation, during a time when they said fiscal policy needed reeling in.
Housing advocates, policy experts and economists have also called out the Liberals for mismatched housing and immigration policies.
They argue that rapid population growth amid constrained housing supply compounded the effect of higher interest rates on affordability.
But much of what the Liberals are experiencing is also a global phenomenon. Inflation has ravaged economies around the world, pushing central banks to aggressively raise interest rates and turning voters against incumbent governments.
Inflation is now falling in many of the same countries. Yet incumbent leaders are still struggling.
In the United States, President Joe Biden is near an all-time low in his approval rating. There, the inflation rate was 3.2 per cent in October, while the Federal Reserve’s benchmark interest rate sits at about 5.4 per cent, the highest level in 22 years.
In the United Kingdom, Conservative Prime Minister Rishi Sunak’s approval rating has also plunged to a record low – even lower than that of Liz Truss, who had to resign after only 49 days in office.
The U.K.’s inflation rate was 4.6 per cent in October, while the Bank of England’s benchmark interest rate sits at 5.25 per cent.
In the Netherlands, inflation has fallen by a lot since peaking above 14 per cent last year. But concerns over immigration – and its perceived impact on affordability – led to the demise of a four-party coalition government in the summer.
The far-right Party for Freedom won the most seats in an election last month. Its leader, Geert Wilders, ran an anti-immigration campaign that was also focused on the cost of living.
“Inflation’s a cancer on government popularity, and there’s no easy treatment,” Coletto said.
Indeed, the treatment has been punishing in its own right. Central banks have responded to high inflation with hefty interest rate hikes that have made it more expensive for consumers and businesses to borrow money.
The Bank of Canada’s key interest rate currently sits at five per cent, the highest it has been since 2001.
The pullback in spending has slowed the Canadian economy this year and pushed up the unemployment rate, trends that are expected to continue in 2024.
At the same time, Canada’s economy has done much better than economists have expected over the last couple of years. It bounced back after the pandemic, pushing the unemployment rate to a near all-time low of 4.9 per cent in the summer of 2022.
The country has also skirted a recession so far, contrary to many forecasts. And inflation is 3.1 per cent, down significantly from last year’s breathtaking highs.
Yet people still feel down about the economy – a phenomenon Meredith described as a “vibe-cession.”
“To a lot of people, it looks and feels like a recession, even though we’re not actually in a recession yet,” he said.
The political challenge for the Liberals is finding a way to bridge the disconnect between negative public sentiment and the truth about the economy, Meredith added.
Meanwhile, Conservative Leader Pierre Poilievre’s aggressive yet simple cost-of-living message has been catching fire online. His 15-minute video about the housing crisis garnered millions of views on social media since it was released earlier this month.
The explainer-style video, which uses graphics and statistics to illustrate the scale of the housing crisis, argues that Canada’s housing affordability crisis has a simple cause: Trudeau himself.
But it’s too early to conclude that it’s over for the the Liberals, said Meredith, noting that a lot can happen between now and the next election. That contest is scheduled to take place by fall 2025, though it could be called before then.
On the economic front, things are supposed to look different by that time.
Most economists anticipate inflation will return to two per cent by 2025, while the central bank is expected to start cutting rates sometime next year.
Lower interest rates would signal a better outlook for the economy, but that won’t necessarily mean lower mortgage costs for everyone.
The central bank has been signalling that interest rates may not return to pre-pandemic levels, even as inflation gets more manageable. That means many Canadians will continue to renew their mortgages at higher interest rates, even as rates fall.
As for inflation, Canadians are stuck with higher prices, even if the pace of price growth comes back down to two per cent.
Given the anxieties people are feeling about the costs they’re facing, Meredith said the Liberals need a different economic message.
“If we say, ‘jobs and growth’ – which has often been a mantra that the government has repeated – I’m not sure that means anything to anybody,” he said.
“To get over that, you have to get in front of the issue and say, ‘Here’s what we’re doing to lower costs for you.”’
This report by The Canadian Press was first published Dec. 12, 2023.
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.
