Think of the Canadian economy like a car rolling down a highway. The road begins far over one horizon, and it extends far beyond the other. The blacktop is mostly in excellent condition, and the driving is usually comfortable.
However, the car’s progress is sometimes slowed by unexpected dips in the road. Sometimes, it has to stop for a flat tire; sometimes a section of road gets washed out by a flash flood. After a delay, the journey is always restarted. The driver can see from the map that this highway rolls on and on, into sunny uplands.
But in between here and there, a chasm has opened up, and it’s the size of the Grand Canyon. As a result of the coronavirus, and measures to fight it, a record of almost one million Canadians sought Employment Insurance between March 16 to 22. The true number of those who are jobless or working reduced hours is likely much higher.
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The answer to this chasm in the road is a bridge. Canada’s economy was strong before the pandemic, and that strength – its workers, companies, and factories – will be there after. We just need to get them across that yawning gap in the road.
Work to build the bridge started two weeks ago, led by the federal government. Ottawa’s first package was $82-billion for people and businesses. The support last week was increased to $107-billion – equivalent to roughly a third of Canada’s budget in the past year.
Then came last Friday morning. The Bank of Canada slashed interest rates again and outlined billions of new dollars to back businesses and gird the financial system. Soon after Ottawa said it would temporarily pay three-quarters of workers’ wages at small businesses – far more than its previous plan. Ottawa also put up another $95-billion in tax deferrals and loans.
In the long run, the best way to get out of a COVID-19 recession is to beat the virus, so that large parts of the economy no longer need to be shutdown. The good news is that there are already hopeful signs that Canada is making progress on bending the curve of new infections.
However, large sections of the economy will remain shutdown for weeks, and possibly longer. The bridge between the full-employment economy that was and the full-employment economy that will be is a massive but temporary income-support program.
Can we afford it? The answer is we can’t afford not to. On Friday, a group of experts assembled by the C.D. Howe Institute concluded: “The risks and consequences of not supporting employers and individuals enough is significantly higher than offering too much.” They are correct.
The numbers may sound otherworldly. Ottawa’s biggest deficit during the financial crisis was $56-billion. The Parliamentary Budget Officer on Friday outlined a scenario where the deficit will hit $113-billion.
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However, the cost of borrowing is at a record low. The yield on 10-year federal bonds is below 1 per cent. At no time since humans invented lending at interest has borrowing been so cheap. As University of British Columbia economist Kevin Milligan recently pointed out, at a one per cent interest rate, Canada could service $1-trillion in new debt for $10-billion a year – or about what Ottawa takes in from just one percentage point of GST.
Depending on how much progress Canada makes on the health front, and how soon, the final costs of the economic bailout could be lower than announced. Much of the federal aid is in tax deferrals and interest-free bridge loans. If the economy restarts, that money will eventually find its way back to the federal treasury.
Ottawa had been criticized for not doing enough and Friday marked a turn. The federal program contains many smart elements, from directing money through existing programs such as Employment Insurance and the Canada Child Benefit, to subsidizing small businesses to hang on to employees, rather than laying them off.
On Friday, Deputy Prime Minister Chrystia Freeland said the goal is for the economy to come “roaring back when the health crisis has abated.”
That roar will be most pronounced, with no turbo lag, if companies remain solvent and staffed up.
The bottom line is that, in the coming weeks, our economic path will be determined by the fight against the virus. The sooner we beat it, the sooner we can get back on the road.
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.
