Canada’s economy is flirting with recession and the downturn could worsen now that a period of rapid growth in the United States is expected to end, raising bets on the Bank of Canada shifting to interest rate cuts sooner than previously thought.
The Canadian central bank expects that the economy will avoid a recession, and last month forecast growth of 0.8% for both the third and fourth quarters.
Since then, preliminary data has indicted a shallow economic contraction for a second straight quarter in the third quarter. Analysts say that if U.S. activity slows, then the Canadian economy could shrink in the current quarter as well.
The BoC has said it wants to cool the economy just enough to bring down inflation, but it does not want policy to be so restrictive that it triggers a deep recession.
“According to established economic wisdom, when the U.S. sniffles, Canada tends to catch a cold,” said Karl Schamotta, chief market strategist at Corpay.
“But with the world so reliant on American consumer demand, and the Canadian private sector carrying exorbitantly high debt levels, if the U.S. sniffles, Canada is going to get pneumonia.”
Canada sends about 75% of its exports to the United States.
“One reason we expect Canada’s economy to contract in the fourth quarter is that its major trading partner, the U.S., is expected to decelerate sharply,” said Sal Guatieri, a senior economist at BMO Capital Markets. “That will hit Canadian exports.”
The Federal Reserve Bank of Atlanta’s running estimate of fourth-quarter growth in the United States is at 2%, down from a blockbuster pace of 4.9% in the third. BMO projects that U.S. growth will slow to 0.9% in the fourth quarter and that Canada’s economy will shrink 1%.
The potential for further weakening in the Canadian economy is already evident in money markets. They have moved to price in a rate cut as soon as April after betting just last month that the benchmark rate would not be lowered from its current level of 5%, a 22-year high, before the end of 2024 and that the BoC may need to tighten further.
“The Bank (of Canada) has seemingly overestimated GDP growth for two quarters now, which implies that it is probably underestimating the impact of high interest rates on activity,” said Stephen Brown, deputy chief North America economist at Capital Economics. Brown also expects a fourth-quarter contraction in the economy.
Support for the economy could come from government spending – some additional measures are expected in a fiscal update on Tuesday – and record levels of immigration, say analysts.
But productivity has tended to be a drag, falling in 11 of the last 12 quarters, and household finances are being squeezed as Canadians renew their mortgages at much higher interest rates after borrowing heavily during the pandemic to participate in a red-hot housing market.
“The Bank used to make a lot about this idea that consumers were well placed to cope with higher interest rates, but that idea is now being called into question given the weakness of retail sales volumes and renewed declines in house prices,” Brown said.
(Reporting by Fergal Smith; editing by Jonathan Oatis)
OTTAWA – Statistics Canada says retail sales rose 0.4 per cent to $66.6 billion in August, helped by higher new car sales.
The agency says sales were up in four of nine subsectors as sales at motor vehicle and parts dealers rose 3.5 per cent, boosted by a 4.3 per cent increase at new car dealers and a 2.1 per cent gain at used car dealers.
Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — fell 0.4 per cent in August.
Sales at food and beverage retailers dropped 1.5 per cent, while furniture, home furnishings, electronics and appliances retailers fell 1.4 per cent.
In volume terms, retail sales increased 0.7 per cent in August.
Looking ahead, Statistics Canada says its advance estimate of retail sales for September points to a gain of 0.4 per cent for the month, though it cautioned the figure would be revised.
This report by The Canadian Press was first published Oct. 25, 2024.
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
