Some shoppers take a break in Toronto’s Eaton Centre, as others swirl about them. Canada’s economy is trending toward annualized growth of 2.5 per cent in the first quarter, but this growth rate could be difficult to replicate in the immediate future.Tibor Kolley/the Globe and Mail
After robust growth at the start of the year, the Canadian economy is losing momentum this spring as it contends with higher interest rates.
The jump in output in the early stages of 2023, which followed a stagnant fourth quarter of 2022, was thanks in part to unseasonably warm weather and strong labour demand. But the upturn appears to have been short-lived.
Real gross domestic product rose 0.1 per cent in February, after a 0.6-per-cent expansion in January, Statistics Canada said Friday in a report. In a preliminary estimate, the agency said GDP edged lower by 0.1 per cent in March.
All told, the economy is trending toward annualized growth of 2.5 per cent in the first quarter. This pace of growth is much stronger than forecasters had expected at this stage of the economic cycle, but it could be difficult to replicate in the immediate future.
The Bank of Canada has aggressively raised interest rates in a deliberate attempt to slow the economy and bring inflation under control. Its policy rate – now at 4.5 per cent, the highest since late 2007 – is expected to remain at elevated levels for some time.
Most private-sector forecasters believe Canada will enter a mild recession later this year as higher interest rates continue to weigh on economic activity. The outlook is further complicated by the fact that more than 100,000 federal public servants are on strike. The work stoppage has lasted into a second week, with little progress in negotiations.
“The weak end to the first quarter, combined with the negative but temporary impact of the public sector strike on Q2 GDP, increases the risk of a contraction in economic activity during the second quarter,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a note to clients.
“However, the Bank of Canada will look through that volatility, and focus instead on trying to get and keep inflation and inflation expectations under control. While a weakening economy should prevent policymakers pulling the trigger on another interest rate hike, we don’t see cuts forthcoming until early next year.”
Statscan divides the economy into 20 subsectors. In February, 12 of them had increases in GDP. The public sector – which includes education, health care and public administration – rose 0.2 per cent, for a 13th consecutive monthly increase. The strike puts that streak in jeopardy.
Output in the construction industry rose 0.3 per cent in February, matching the increase in finance and insurance.
By contrast, activity in wholesale trade fell 1.3 per cent during the month, while retail trade dropped by 0.5 per cent. According to Statscan’s estimates, those industries continued to decline in March, contributing to the overall contraction in output.
More than one year after the Bank of Canada started to raise interest rates, the economy has shown resilience. Companies are continuing to hire, and the unemployment rate (5 per cent) is just shy of a record low. Many households are continuing to spend freely, undeterred by lofty inflation and rising interest rates.
The Bank of Canada recently upgraded its GDP growth forecast for 2023 to 1.4 per cent from 1 per cent, to account forthe early burst in activity.
But the central bank expects growth to be weak through the rest of the year. It can take time – 18 to 24 months – for rate hikes to fully transmit to the economy.
Bank of Canada officials considered raising interest rates this month, but ultimately chose to hold rates steady, according to a summary of deliberations that was published this week.
The annual inflation rate ebbed to 4.3 per cent in March, from a peak of more than 8 per cent in June, 2022. The central bank projects a further deceleration to around 3 per cent by the middle of the year.
Still, Bank of Canada officials have stressed that getting inflation back to their 2-per-cent target could prove challenging. Financial analysts have interpreted the bank’s recent communications as an indication that interest rates will not be lowered this year.
“Higher interest rates are slowing household spending, particularly on big-ticket items. As mortgages are renewed at higher rates, more households will feel the restraining effects of monetary policy,” Bank of Canada Governor Tiff Macklem explained during a recent news conference.
“Business investment is also expected to soften in the year ahead, dampened by weaker demand for Canadian exports and higher financing costs,” he said. “Taking these forces into consideration, we expect Canadian GDP growth to be weak for the rest of this year before beginning to pick up gradually through 2024 and through 2025.”
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.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
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