Economy

Canadian economy stalls in second quarter: StatCan

Published

1 year ago

September 2, 2023

OTTAWA —
Economists say the latest GDP data from Statistics Canada showing a contraction in the economy suggests the Bank of Canada’s rate hiking campaign may be coming to an end.

The Canadian economy appeared to stall in the second quarter as investment in housing continued to fall, led by drop in new construction. The economy contracted at an annualized rate of 0.2 per cent in the second quarter, Statistics Canada reported, far weaker than forecasters had expected.

The decline in the second quarter came as housing investment fell 2.1 per cent to post its fifth consecutive quarterly decrease. New construction dropped 8.2 per cent in the quarter, while renovation spending fell 4.3 per cent.

The drop in spending came as Canadians face higher borrowing costs fuelled by interest rate hikes by the Bank of Canada, which is trying to bring inflation back to its target of two per cent.

Tu Nguyen, an economist with accounting and consultancy firm RSM Canada, said the cooling economy should be enough evidence for the central bank to forgo further rate hikes unless there is another major external shock that sends inflation upward.

“The bank’s goal is eventually to restore price stability, to taper an overheated economy. Their goal is not to incur a recession. So it looks like the bank is achieving their goal,” she said.

“They’re certainly going to continue monitoring the data because there has been quite a lot of noise. The reason why I’m fairly confident that this is the end of it is we don’t expect spending to really go up towards the end of the year.”

Nguyen said this is the first time since the early days of the pandemic that spending on services did not grow, which she noted is a powerful signal of a cooling economy. This, despite household savings going up, suggests “people actually have more money in their pockets but they’re choosing to save it and not spend it because they’re anticipating a recession.”

The Bank of Canada’s next interest rate decision is set for next week.

The central bank raised its key interest rate by a quarter of a percentage point to five per cent in July as it said it remained concerned that progress toward its two per cent inflation target could stall.

Nguyen predicted the Bank of Canada likely won’t cut rates until at least April 2024.

“The bank needs to see sustained evidence of inflation going at least towards two per cent. It probably won’t get to two per cent until 2025 but it needs to stay below three per cent for long enough,” she said.

“If the bank cuts rates too early, it’s encouraging businesses and households to go out and borrow again, sort of heating up the economy again, and we really need a period of cooling down.”

Statistics Canada also revised its reading for growth in the first quarter to an annual pace of 2.6 per cent, down from 3.1 per cent.

“The surprise contraction in second-quarter GDP leaves little doubt that the Bank of Canada will keep interest rates unchanged next week,” wrote Stephen Brown, deputy chief North America economist for Capital Economics, in a note to clients.

“With the fall in monthly GDP in June and the apparent stagnation in July setting a weak foundation for the third quarter, the Canadian economy may already have fallen into a modest recession.”

The weakness in the second quarter was also attributed to lower inventory accumulations, as well as slower growth in exports and household spending.

Exports of goods and services crept up 0.1 per cent in the second quarter compared with a 2.5 per cent increase in the first quarter.

Growth in real household spending slowed to 0.1 per cent in the second quarter compared with 1.2 per cent in the first quarter.

Meanwhile, business investment in non-residential structures gained 2.4 per cent in the second quarter, boosted by a 3.3 per cent gain in spending on engineering structures.

The overall pullback in the second quarter came as the economy contracted by 0.2 per cent in June.

Services-producing industries dropped 0.2 per cent in June, while goods-producing industries contracted 0.4 per cent for the month.

Statistics Canada also said its early estimate for July suggested real GDP was essentially unchanged for the month, though it cautioned the figure would be updated.

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

3 hours ago

October 21, 2024

Anne Joseph

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.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

4 days ago

October 17, 2024

Anne Joseph

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.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

5 days ago

October 16, 2024

Anne Joseph

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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