Justin Trudeau’s government has had to weather many storms over the last eight years.
The SNC-Lavalin controversy. An old yearbook photo with the prime minister in blackface. Multiple ethics violations. The COVID-19 pandemic.
But as the governing Liberals continue to slide in the polls, the slow-moving hurricane that may actually end up blowing them away appears to be the economy.
For many, the pandemic has receded into little more than a bad memory. But the economic domino effect it touched off lingers on, wreaking electoral havoc on incumbent governments around the world.
High inflation and interest rates have left people feeling worse off, even as the Canadian economy outperforms expectations in many ways.
Polls suggest the governing party is badly trailing the Conservatives. Cost-of-living issues are dominating federal politics and a resurgent Tory party is placing the blame for the erosion of affordability squarely on Trudeau’s shoulders.
When did things start going so wrong for the Liberals?
Support for the Conservatives took off this summer, just as the Bank of Canada began raising interest rates again after pausing its rate-hiking cycle earlier in the year.
“That was when people were starting to cycle through the first wave of mortgage renewals,” said Tyler Meredith, a former head of economic strategy and planning for Finance Minister Chrystia Freeland.
Canadians renewing their mortgages this year are seeing higher monthly payments as they pay more in interest to finance their homes. That leaves less money on the table for everything else.
The federal government doesn’t actually set interest rates, but data suggest a close correlation between the Bank of Canada’s rate hikes and the bottom falling out of public support for the Liberals.
Even before this year’s spike, Abacus Data polling at the time suggested the Conservatives first started to overtake the Liberals after the central bank’s first post-pandemic rate hike in March 2022.
“I do think that was a turning point,” said David Coletto, the CEO of the Ottawa-based polling and market research firm.
A range of polling indicators have turned against the Liberals since then, he added.
For months, the federal government has faced relentless scrutiny, partisan and otherwise, for its perceived role in the affordability crisis.
Some economists accused Ottawa of spending too much in the face of soaring inflation, during a time when they said fiscal policy needed reeling in.
Housing advocates, policy experts and economists have also called out the Liberals for mismatched housing and immigration policies.
They argue that rapid population growth amid constrained housing supply compounded the effect of higher interest rates on affordability.
But much of what the Liberals are experiencing is also a global phenomenon. Inflation has ravaged economies around the world, pushing central banks to aggressively raise interest rates and turning voters against incumbent governments.
Inflation is now falling in many of the same countries. Yet incumbent leaders are still struggling.
In the United States, President Joe Biden is near an all-time low in his approval rating. There, the inflation rate was 3.2 per cent in October, while the Federal Reserve’s benchmark interest rate sits at about 5.4 per cent, the highest level in 22 years.
In the United Kingdom, Conservative Prime Minister Rishi Sunak’s approval rating has also plunged to a record low – even lower than that of Liz Truss, who had to resign after only 49 days in office.
The U.K.’s inflation rate was 4.6 per cent in October, while the Bank of England’s benchmark interest rate sits at 5.25 per cent.
In the Netherlands, inflation has fallen by a lot since peaking above 14 per cent last year. But concerns over immigration – and its perceived impact on affordability – led to the demise of a four-party coalition government in the summer.
The far-right Party for Freedom won the most seats in an election last month. Its leader, Geert Wilders, ran an anti-immigration campaign that was also focused on the cost of living.
“Inflation’s a cancer on government popularity, and there’s no easy treatment,” Coletto said.
Indeed, the treatment has been punishing in its own right. Central banks have responded to high inflation with hefty interest rate hikes that have made it more expensive for consumers and businesses to borrow money.
The Bank of Canada’s key interest rate currently sits at five per cent, the highest it has been since 2001.
The pullback in spending has slowed the Canadian economy this year and pushed up the unemployment rate, trends that are expected to continue in 2024.
At the same time, Canada’s economy has done much better than economists have expected over the last couple of years. It bounced back after the pandemic, pushing the unemployment rate to a near all-time low of 4.9 per cent in the summer of 2022.
The country has also skirted a recession so far, contrary to many forecasts. And inflation is 3.1 per cent, down significantly from last year’s breathtaking highs.
Yet people still feel down about the economy – a phenomenon Meredith described as a “vibe-cession.”
“To a lot of people, it looks and feels like a recession, even though we’re not actually in a recession yet,” he said.
The political challenge for the Liberals is finding a way to bridge the disconnect between negative public sentiment and the truth about the economy, Meredith added.
Meanwhile, Conservative Leader Pierre Poilievre’s aggressive yet simple cost-of-living message has been catching fire online. His 15-minute video about the housing crisis garnered millions of views on social media since it was released earlier this month.
The explainer-style video, which uses graphics and statistics to illustrate the scale of the housing crisis, argues that Canada’s housing affordability crisis has a simple cause: Trudeau himself.
But it’s too early to conclude that it’s over for the the Liberals, said Meredith, noting that a lot can happen between now and the next election. That contest is scheduled to take place by fall 2025, though it could be called before then.
On the economic front, things are supposed to look different by that time.
Most economists anticipate inflation will return to two per cent by 2025, while the central bank is expected to start cutting rates sometime next year.
Lower interest rates would signal a better outlook for the economy, but that won’t necessarily mean lower mortgage costs for everyone.
The central bank has been signalling that interest rates may not return to pre-pandemic levels, even as inflation gets more manageable. That means many Canadians will continue to renew their mortgages at higher interest rates, even as rates fall.
As for inflation, Canadians are stuck with higher prices, even if the pace of price growth comes back down to two per cent.
Given the anxieties people are feeling about the costs they’re facing, Meredith said the Liberals need a different economic message.
“If we say, ‘jobs and growth’ – which has often been a mantra that the government has repeated – I’m not sure that means anything to anybody,” he said.
“To get over that, you have to get in front of the issue and say, ‘Here’s what we’re doing to lower costs for you.”’
This report by The Canadian Press was first published Dec. 12, 2023.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
