The Bank of Canada is framed in an iron rail in Ottawa on Dec. 15, 2020.
Sean Kilpatrick/The Canadian Press
Along with much of the world, Canada’s economy has suffered from the COVID-19pandemic and other events in 2020, notably the shock to global oil markets. How badly? An examination of the immediate data and longer trends indicates significant damage, with a lengthy recovery period ahead.
Let’s start with labour markets, where there are signs of recovery but also growing evidence of damage. The unemployment rate exploded to nearly 14per cent from 6 per cent during the shutdownfrom March to May. The rate has dropped steadily since as many displaced workers have been re-engaged, but the second pandemic wave and renewed shutdowns in many provinces have meant more job losses. Employment fell by 63,000 in December, and the unemployment rate rose slightly to 8.6 per cent.
There are many other worrying signs. Long-term unemployment – lasting 27 weeks or longer – has increased sharply and now represents more than one-quarter of those unemployed, with a growing risk of many discouraged workers dropping out of the work force.
Story continues below advertisement
Much of the Canadian work force is underutilized. The most recent Statscan data show that one in six people in the potential labour force are employed but working less than half of their usual hours, unemployed or want a job but are not looking for one.
Women, youth, Indigenous people and new Canadians continue to be particularly affected by pandemic-driven unemployment and underemployment. To help minimize long-term scarring, active labour market policy is called for, including enhanced retraining and skills development, facilitating school-to-work transitions for recent graduates, supporting labour market participation by parents and underrepresented groups, and fully recognizing and utilizing the skills of new Canadians.
Economic output has been steadily rebuilding after the deep contraction during the first shutdown period. The consensus among private forecasters is that GDP shrank by 5.8 per cent in 2020, with real growth of 4.8 per cent projectedfor 2021. Despite this rebound, the survival of many businesses remains under threat. Even with a successful vaccine rollout and a steady return to more normal operating conditions in many sectors, Canadian GDP by the end of 2021 is projected to be about 3 per cent below GDP at the end of 2019.
Perhaps the most serious indicator of damage is the estimated drop in long-term growth performance for the Canadian economy, which economists call “potential.” The recent federal economic statement provided a revised estimate of Canada’s growth potential, taking into account the pandemic shutdown and uneven recovery.
Long-term growth potential has declined by roughly half a percentage point from estimates before the pandemic, to only 1.4 per cent real growth annually. This drop reflects the combined impact of a sharp decline in investment, the effect on labour markets, plus chronically weak productivity growth.
That growth potential matters. Fundamentally, it determines the capacity for improvements to Canadians’ real incomes and living standards. Slower growth squeezes the capacity to fund public spending priorities such as health care, as well as the ability to manage the much higher level of public debt owing to the pandemic policy response. Long-term annual growth that is half a percentage point lower than before the pandemic increases the odds of an eventual tax increase to fund policy priorities and manage public debt.
Canada’s long-term annual growth potential can be raised back toward 2 per cent, but it will require a reversal in labour market and investment trends this year. As noted earlier, some healing is taking place in Canadian labour markets, but there are also still many individuals at risk. The consensus forecast in the economic statement indicated it will be 2024 before the unemployment rate declines to prepandemic levels.
Story continues below advertisement
A sustained boost to the level of investment would make a valuable contribution to growth, fostering capital formation and faster productivity growth. Increased public sector investment in infrastructure can partly address the investment gap, but higher sustained private investment will be key to maintaining and building the economy’s productive capacity and the ability to innovate.
While investment in maintenance of the existing capital base will recover somewhat as the economy slowly heals, new capital formation is bound to be more difficult. The scale of investment in energy production, distribution and use with low or no greenhouse gas emissions, along with addressing the transition challenges facing the oil and gas sector, will be critical to the long-term Canadian growth puzzle.
The pandemic has inflicted damage on many individuals and businesses. It is not realistic to expect a return to normal any time soon. However, policy can certainly help guide us through the uneven recovery.
Policy action could usefully focus on minimizing labour market scarring as a top priority. Creating the best possible investment climate with an eye on the transition to an economy with low or no GHG emissions also deserves attention. Maintaining international business tax competitiveness has always been a challenge, but one we cannot ignore. Improving the overall competitive and regulatory environment is another option that is fully within our control; more efficient regulatory processes could be adopted without sacrificing health, safety and other standards.
While there is no single silver bullet for lifting private investment, these actions together will go a long way.
Glen Hodgson is a senior fellow at the C.D. Howe Institute.
Story continues below advertisement
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.
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.
/cloudfront-us-east-1.images.arcpublishing.com/tgam/GGUS3HVWGRNKZDZWXMEDSYZ2JQ.jpg)
