Construction workers rig materials for a lift during the COVID-19 pandemic in Toronto on Sept. 29, 2020.
Nathan Denette/The Canadian Press
The Canadian economy is poised for strong growth in 2021 as COVID-19 vaccinations reach a critical mass of people, and restrictions are gradually lifted – the start of a return to normal after a destructive year for workers and businesses.
The script for next year isn’t written, but economists are largely agreed on the rough outline. Employers will add to headcount. Hard-hit service industries will be released from crippling lockdowns. And households, sitting on billions in excess cash, will unleash some pent-up demand. With companies and consumers feeling more upbeat, growth is the key theme for 2021.
To that end, real gross domestic product is projected to rise by 4.4 per cent next year, based on the median estimate from private-sector economists. That would unwind some of the 5.7-per-cent decline that’s expected for 2020, once final numbers are tallied.
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“Fundamentally, there wasn’t anything wrong with the economy before this all began,” said Douglas Porter, chief economist at Bank of Montreal. “And because of the tremendous fiscal support, I do think [the economy is] relatively well-coiled to come back when health conditions do allow.”
He did inject a note of caution, however: “The economy is going to be slogging uphill in the next couple of months. …It’s going to be a tough grind through the winter.”
Indeed, 2021 will get off to a rough start. Much of the country is grappling with a second wave of the coronavirus, and targeted restrictions could be in place for months more. Furthermore, millions of underemployed people are still relying on government support to pay the bills, while thousands of businesses find themselves in a similar position.
As such, economic growth will be tepid – or worse, non-existent – in the early months of 2021. Bank of Canada Governor Tiff Macklem has warned of a small backslide in the first quarter.
But the second quarter (April through June) is when many on Bay Street expect the tide to turn.
In essence, the economy will be guided by inoculation. Canada began its vaccination campaign in mid-December, and upwards of three million people will receive their shots by the end of March, according to Ottawa’s initial timetable. That should allow policy makers to begin easing restrictions by March or April, several economists said.
The second quarter is the “pivot point on growth being much stronger,” said Beata Caranci, chief economist at Toronto-Dominion Bank.
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Broadly speaking, households are well-positioned to guide the recovery. The federal government’s support programs have more than replaced income lost through layoffs. Combined with weaker consumption, savings have skyrocketed. A recent CIBC Capital Markets report said households and businesses are sitting on no less than $170-billion in excess cash.
In its fall economic statement, the federal Liberals said they would enact measures to help “unleash” these savings, referring to them as “preloaded stimulus.”
A big question for 2021 is how much of those savings people spend – and whether the government should do anything to coax money from chequing accounts.
“If you think back a year ago, what was the biggest concern about the Canadian economy? The vulnerability of the household sector and the weakness of household finances,” Mr. Porter said. “It’s not necessarily a bad thing that [households have] built up this extra cushion of savings.”
The federal government will unveil in 2021 the details of an economic stimulus plan costing as much as $100-billion over three years. Spending will be tied to “fiscal guardrails” that have yet to be outlined, but are based on labour market performance. (Canada has recovered around 80 per cent of its pandemic job losses.)
“I suspect [Ottawa] won’t need to spend as much as perhaps they are anticipating on that front,” said Ms. Caranci, pointing to the relative health of household balance sheets. “If people are income-protected during the crisis, it would suggest you have to do less after the crisis.”
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Her bigger concern is corporate health. Business insolvencies have been especially low during the economic downturn, thanks to government programs that supply no-interest loans and subsidies for rent and wages. Many supports are slated to run until June.
“Once you take away those supports, next year might show where the weaknesses are among businesses,” Ms. Caranci said. “That should really be where [the federal government has] their sights, because if you don’t have businesses, you don’t have workers.”
In his final speech and press conference of 2020, the Bank of Canada’s Mr. Macklem focused on strategies to strengthen international trade. He noted, however, that a stronger loonie – largely due to a broad-based weakening of the U.S. dollar – was making things difficult.
“There’s no question, this appreciation of the [Canadian] dollar is, on the margin, making our exporters less competitive,” he said. “It’s material. It’s on our radar screen.”
At the same time, Mr. Macklem urged the corporate sector to make investments that enhance productivity and competitiveness. He noted that borrowing costs will be “low for a long while.” The bank has pledged to keep its key rate at a record low 0.25 per cent into 2023.
“This seems an opportune time for companies to look at how they judge the rate of return on potential investments – the so-called hurdle rate,” he said. “Taking a longer-term approach to capital investment could unlock a myriad of viable growth opportunities.”
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The coming year will vary by region. In a recent forecast, TD Bank said real GDP would expand in all provinces, ranging from 3.1 per cent in Prince Edward Island to 5.6 per cent in Ontario.
“On the margin, provinces with a greater exposure to hard-hit services and tourism industries should benefit more,” the report said. “A swifter rebound in commodity prices should also provide support to the Prairie provinces.”
With a report from David Parkinson
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OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
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