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 – 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.
