The Canadian economy has stalled in recent months as higher interest rates weigh on growth, bringing the country to the brink of a mild recession.
Real gross domestic product was essentially unchanged in September, according to a preliminary estimate that Statistics Canada published Tuesday. While the numbers will be revised on Nov. 30, GDP is on track to fall by 0.1 per cent annualized in the third quarter, after a 0.2-per-cent drop in the second quarter.
If those figures hold, Canada would post two consecutive quarters of declining GDP – what some economists refer to as a “technical recession.” Output would also be considerably weaker than the Bank of Canada’s most recent projection, published last week, which expected 0.8-per-cent growth in the third quarter.
The situation is much different in the United States, which last week reported annualized growth of 4.9 per cent in the third quarter, the quickest expansion since the final quarter of 2021.
The Statscan numbers provide further evidence that Canada’s economy is stagnating as higher interest rates curb spending and investment. The Bank of Canada has rapidly raised interest rates – its policy rate stands at 5 per cent, up from 0.25 per cent in early 2022 – to subdue the biggest inflationary surge in four decades. (The bank had previously slashed interest rates to stimulate the economy amid COVID-19-induced lockdowns.)
But as economic activity wanes, analysts on Bay Street are increasingly convinced that the central bank is finished with its rate-hike campaign.
“This is yet one more crystal clear sign that the Bank of Canada should be done hiking,” Benjamin Reitzes, a Bank of Montreal strategist, wrote in a client note. “The potential for a second consecutive negative quarterly GDP reading will cause recession chatter to ramp up quickly. The soft economic backdrop, which still has downside, will drive inflation down over time. … It’s just a question of how quickly.”
In August, eight of 20 industrial sectors posted increases in real GDP. (The Statscan report offered detailed figures for August, but just an overall estimate for September.) Services-producing industries edged up 0.1 per cent, while the goods-producing industries fell 0.2 per cent.
Mining and oil and gas extraction jumped by 1.2 per cent in August, although this was partially a recovery from the disruption of forest fires earlier in the year. Manufacturing fell for a third consecutive month, while the hospitality sector slid by 1.8 per cent, with particular weakness at restaurants and bars.
In its latest projections, the Bank of Canada downgraded its outlook for economic growth, though officials are not predicting a recession.
“We’re expecting growth below 1 per cent for the next three, four quarters,” Bank of Canada Governor Tiff Macklem explained at a press conference last week. “Is that a recession? No, it’s not a recession. It’s low positive growth.”
Mr. Macklem said “some small negative numbers” couldn’t be ruled out in the near future – although this wouldn’t necessarily qualify as a recession.
“When people say the word ‘recession,’ I think what they have in mind is a steep contraction in output and a large rise in unemployment. That’s not what we’re forecasting.”
Canada’s labour market has softened in recent months, as seen with declining job postings and a slower pace of hiring. Still, the unemployment rate (5.5 per cent) is low by historical standards. Statscan will publish the next results from its Labour Force Survey on Friday.
The annual inflation rate has fallen to 3.8 per cent from a peak of 8.1 per cent last summer. Despite that progress, the Bank of Canada has warned of various risks to the outlook, including volatile oil prices and sharp increases in housing costs, owing to a supply shortage.
Mr. Macklem told the parliamentary finance committee on Monday that the Bank of Canada could begin cutting interest rates before inflation returns to its 2-per-cent target. The central bank projects a return to target by mid-2025. Many analysts expect rate cuts to start some time next year.
If GDP declines slightly for two consecutive quarters, it could lead to a hearty debate about whether Canada is in recession – particularly if the labour market continues to exhibit strength.
In 2015, for instance, Canada posted two consecutive quarters of GDP decline, owing to a plummet in oil prices that hammered Alberta’s economy. Many analysts referred to the situation as a “technical recession.”
The C.D. Howe Institute did not agree. In 2018, the think tank’s business cycle council took a final vote on the 2015 downturn and narrowly decided it wasn’t a recession. The council said the breadth of the GDP contraction was narrow and that employment rose during the period in question.
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.
