The Bank of Canada held its overnight rate at five per cent on Wednesday, as Canada’s economy continues to slow and there are indications that supply and demand are now approaching balance.
Interest rate increases have dampened economic growth, with Canadian economic growth averaging one per cent this year. The economy is expected to remain weak throughout 2024, before picking up to 2.5 per cent in 2025.
“We’ve been expecting the economy to slow and the data we’ve been receiving is showing that slowly, and in fact, the economy has slowed a little more than we were predicting back in July,” said Bank of Canada governor Tiff Macklem during a press conference with reporters in Ottawa on Wednesday.
The bank said it remains concerned that progress towards its target rate of two per cent remains slow. Oil prices are higher than expected, and there is a risk they may go higher if the Israel-Gaza war turns into a regional conflict. On the domestic side, inflation expectations among households and businesses remain high, which also pose a risk to the central bank’s ability to get back to target, it said.
“Furthermore, businesses may be slower to adjust their pricing behaviour,” reads the Monetary Policy Report (MPR), released on Wednesday. “In addition, if the labour market remains tight or productivity growth remains weak, cost pressures could be higher and more persistent than projected.”
In September, inflation was at 3.8 per cent, down from four per cent in August. The bank expects the consumer price index to remain at 3.5 per cent until the middle of next year, before easing back to its two per cent target in 2025.
Macklem would not rule out the need to raise rate higher, if underlying inflation measures begin to tick up again.
“There’s always going to be a certain amount of volatility and headline CPI inflation,” said Macklem. “We’ve been very deliberate. We’re leaving the door open to further interest rate increases because there is uncertainty about that and if we see inflationary pressures persist, we are prepared to raise our interest rate further.”
Jules Boudreau, senior economist at Mackenzie Investments, thinks the next few rate decisions will be uneventful, with growth too soft to support hikes, but inflation too high to justify cuts.
“The bank will be forced to walk on the 5% tightrope for a few quarters,” he wrote in email to CTV News. “But it won’t want to repeat its error from January, when it suggested that rates had reached their peak, before resuming hikes in June. The bank’s credibility took a hit.”
High shelter costs are causing inflationary pressures in the Canadian economy. Canadian households are paying more in rental and mortgage costs. While delinquency rates on mortgages remain at an all-time low, the share of borrowers falling behind on payments by 60 days in other credit products has increased.
“In particular, delinquency rates for motor vehicle loans have surpassed pre-pandemic levels,” reads the MPR.
The central bank remains concerned the economy could slow down faster than it expects, with businesses and households cutting back on investment and consumer spending more than expected.
The bank also points to monetary policy tightening potentially triggering market volatility that could lead to sharp slowdowns in global growth.
“Monetary policy is tight in most advanced economies, and bond yields have risen sharply in recent weeks, reaching levels not seen since before the 2008-09 global financial crisis,” reads the release. “If the increase in yields proves to larger or more persistent than expected, equity and other asset prices could be negatively impacted further.”
Macklem said the central bank is still not predicting a recession, but that a few quarters of near-zero GDP growth could also turn into a few quarters of negative growth.
“When people say the word recession I think what they have in mind is a steep contraction and output and a large rise in unemployment,” Macklem said. “We’ve been saying for some time that the path to a soft landing is narrow and in this projection that path has gotten narrower.”
The next rate announcement is expected on Dec. 6. The next Monetary Policy Report is expected on Jan. 24.
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.
