Almost any budgetary process is an exercise in optimism. The federal government hopes it can hold the line on program spending. It hopes the global economy is on the road to a better place. Mostly, it hopes things don’t get worse.
In a world awash in uncertainty, that can be a risky bet.
“The risks are only to the downside,” said Kevin Page, president of the Institute of Fiscal Studies and Democracy at the University of Ottawa.
The Fall Economic Statement (FES) is built on economic projections from multiple economists across the country.
Those projections indicate real GDP growth will slow to around 0.3 per cent this year but suggest Canada will avoid a recession. The statement indicates inflation will average 3.8 per cent this year and 2.5 per cent next year and the unemployment rate will peak at roughly 6.4 per cent in 2024.
That weakness is being felt across the country as prices and interest rates rise, and as the economy slows.
Finance Minister Chrystia Freeland knows just how pinched Canadian households feel right now.
WATCH: Freeland ‘confident’ in Canada’s prospects in a slowing economy
Freeland ‘really confident’ in Canada despite growing economic uncertainty
3 days ago
Duration 13:10
Featured Video‘I’m actually, in an appropriately humble way, really confident about Canada,’ said Finance Minister Chrystia Freeland in an interview with Power & Politics. ‘This is a challenging world but there is truly no country in the world that is better positioned to get through this uncertainty than our own.’
“Canadians are worn out, frustrated and feeling the squeeze,” she said in a speech to Parliament. “What Canadians deserve today is for us to address the very real pain that so many are feeling — with a hopeful and achievable vision for our country’s future.”
But all that uncertainty is weighing on the economy. For years now, the economic data have consistently surprised economists.
So what if the feds’ forecasts are wrong?
The FES lays out what it calls a “downside scenario.” It shows what would happen if the economy weakens in the months and years ahead.
The downside scenario built into the economic statement foresees a “mild recession”.
Under that scenario, inflation would remain “stuck” around 3 per cent until next fall. The Bank of Canada would raise rates another quarter point, GDP would decline by 1.7 per cent, unemployment would rise to 7.1 per cent.
After the last three years of economic volatility, that “downside scenario” is not very far-fetched at all.
“Consumption is weakening in real terms. Residential investment in real terms is declining. Even manufacturing is weak. It’s just a lot of weakness,” said Page.
The issue isn’t just what a possible downturn would look like.
If the economy slows by more than expected, that has an immediate impact on the rest of the government’s numbers. The economic statement says the deficit under the downside scenario would increase by about $8.5 billion annually on average over the planning horizon.
Weaker economic growth would result in lower tax revenue.
“Overall, revenues (would be) down on average by $2.8 billion annually. Higher projected CPI inflation and interest rates lead to higher costs stemming from inflation-indexed programs (program spending is up on average by about $1.5 billion annually) and higher public debt charges (up by about $5.5 billion on average),” says the economic statement.
That downside scenario hinges on inflation getting stuck, forcing the Bank of Canada off the sidelines.
This week’s CPI numbers show the year over year rate of inflation fell to 3.1 per cent in October. But most of that was driven by a fall in the price of gasoline.
And economists point to persistent inflation in services as a source of concern.
The services basket is made up of components that have remained higher even as the headline rate slows. Rent, travel and recreation costs are all up considerably more than the headline rate.
“At this rate of service inflation and its persistence, we’d better hope goods inflation never gets reignited,” wrote Derek Holt, head of capital markets economics at the Bank of Nova Scotia.
As the economy has weakened this year, so too has the resilience of the government’s books.
The Fall Economic Statement shows public debt charges are $46.5 billion this year and will rise to $52.4 billion in 2024. That’s almost as much as the government will pay out in the Canada Health Transfer next year.
And that assumes rates don’t rise any more than they already have. Which is by no means a safe bet.
OTTAWA – Statistics Canada says retail sales rose 0.4 per cent to $66.6 billion in August, helped by higher new car sales.
The agency says sales were up in four of nine subsectors as sales at motor vehicle and parts dealers rose 3.5 per cent, boosted by a 4.3 per cent increase at new car dealers and a 2.1 per cent gain at used car dealers.
Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — fell 0.4 per cent in August.
Sales at food and beverage retailers dropped 1.5 per cent, while furniture, home furnishings, electronics and appliances retailers fell 1.4 per cent.
In volume terms, retail sales increased 0.7 per cent in August.
Looking ahead, Statistics Canada says its advance estimate of retail sales for September points to a gain of 0.4 per cent for the month, though it cautioned the figure would be revised.
This report by The Canadian Press was first published Oct. 25, 2024.
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.
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.
