Canada’s economy is in a solid position. Jobs are being added in droves. GDP is expanding by more than almost anyone expected. And yet, if you ask around, a lot of Canadians think the country is either in or about to fall into a recession.
Even forecasters are a bit surprised by the resiliency of Canada’s economy.
“Most economists are a little bit befuddled by the fact that we have seen such a rapid and important rise in interest rates without having a bigger impact on the economy,” said Pedro Antunes, chief economist of the Conference Board of Canada.
The Bank of Canada has raised interest rates by 425 basis points — or 4.25 percentage points — since this time last year. Those rate hikes were aimed at slowing the economy; the theory goes that if you slow the economy enough, people will buy less stuff. As they buy less stuff, prices should fall.
Inflation peaked at 8.1 per cent in June. The year-over-year rate of inflation has steadily decreased since then. Economists said all those rate hikes would slow the economy considerably.
While that keeps not happening, the recession forecast refuses to go away entirely — in part because we don’t know for sure what inflation will do next.
Canada’s job market beats expectations in March
The Canadian job market has once again outperformed expectations, adding jobs for a seventh month in a row and pushing up wages. The economy added 35,000 jobs in March, almost three times more than expected.
Jobs, GDP growing
Even the Bank of Canada said the fight to get inflation under control would not be easy or painless.
“The unemployment rate is going to go up,” Bank of Canada governor Tiff Macklem said in a CBC interview last fall. “We’re not talking about high unemployment rates that we’ve seen in past recessions, but it is going to go up.”
Since then, Canada has added more than 270,000 jobs. The unemployment rate has remained at or near historic lows.
Wages are rising. The total hours worked has increased.
All while GDP expanded by considerably more than expected in January, and Statistics Canada’s preliminary estimate shows another healthy gain in February.
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Derek Holt, the vice-president of Scotiabank Economics wrote a note to clients on Thursday titled “Canada’s Jobs Juggernaut Defies the Bears.”
“All totalled we’re likely looking at GDP growth of at least three to four per cent,” in the first quarter of this year compared to the one before, wrote Holt.
That’s not the stuff of a recession, and much higher than the 0.5 per cent growth the Bank of Canada forecast.
And yet, both consumers and businesses surveyed by the Bank of Canada show a sweeping amount of pessimism about the state of the economy. In two key surveys released last week, the central bank found people are bracing for a downturn.
“Most respondents expect a recession in the next 12 months,” wrote the Bank of Canada. “That said, people are very uncertain about the economic outlook. This economic uncertainty is pushing some consumers to reduce their spending growth and build up their savings.”
Population growth
So, what’s behind this unexpected surge in growth?
One key thing economists point to is the historic levels of immigration Canada saw in 2022. Canada added more than a million people to its population last year.
That means a million new people filling long-standing job vacancies, and a million more people buying stuff and growing the total pool of economic activity. So much so that the surge in immigration has economists like BMO’s Doug Porter saying they’ve needed to revisit what they consider a “normal” level of job creation.
“The bar for what we would consider a normal month in Canadian employment has certainly risen,” he told CBC News. “Economists used to think 15,000 or so was a normal month, I think normal is now 25,000. So in other words you need 25,000 new jobs just to keep the unemployment rate from rising.”
But for all the resiliency, it’s not like the risks to the economy have suddenly disappeared.
Population growth good for Canada’s economy, expert says
Canada’s population rose by a record one million people in 2022, driven almost entirely by a surge in immigrants and temporary residents. Such growth can lead to a richer and more diverse economy, says Matti Siemiatycki, director of the Infrastructure Institute at the University of Toronto.
The inflation question
The Bank of Canada may have temporarily hit the pause button on more interest rate hikes, but that’s largely because it has not yet seen the full impact of the hikes.
“I think we have not yet felt the full brunt of higher rates,” said Antunes. “Most households in Canada still take on five-year terms on their mortgages and so that takes some time before we see the full impact of that.”
Antunes says the impact will be felt more and more as those mortgage holders are forced to renew at much higher rates.
At the end of the day, the biggest and most important feature on the economic landscape remains inflation. If the year-over-year rate continues to decelerate, all that surprising resilience isn’t much more than a footnote.
But CIBC’s chief economist Avery Shenfeld says if the rate of inflation remains high, the Bank of Canada will have to make some tough decisions.
“In this topsy-turvy world, good news for the economy isn’t really what we’re looking for,” Shenfeld wrote in a note to clients.
“If the slowdown that central banks are aiming at fails to materialize, that could force yet more rate hikes, and risk a harder landing,” he said.
A hard landing is economist-speak for a recession, with jobs lost and the economy shrinking. As we’ve been expecting for months.
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.
