Budget 2023: Canada's economy faces mounting challenges – here's how we overcome them | Canada News Media
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Budget 2023: Canada’s economy faces mounting challenges – here’s how we overcome them

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General Motors assembly workers and supporters protest GM’s announcement to close its Oshawa assembly plant.REBECCA COOK/Reuters

Robert Asselin is senior vice-president of policy at the Business Council of Canada and a former adviser to two prime ministers.

As we approach the release of the federal budget, Canada is facing three converging and powerful challenges that require a coherent economic and fiscal strategy from the government.

The first challenge is the return of a political economy on a global scale. From the United States to Europe and Asia, countries are confronted with the challenges of national security and climate change with global competition over technological innovation and investment. By now, everyone has heard of the U.S. Inflation Reduction Act. Few should doubt the threat it poses to Canada’s economic competitiveness.

The second is the sustainability of the government’s current fiscal plan. Fast-rising debt-servicing costs, higher inflation for longer and diminishing fiscal firepower as a result of having doubled our federal debt during the COVID-19 crisis will all challenge the federal government’s inclination to ignore the real consequences of unconstrained spending.

The third challenge – largely a consequence of the first two – is the imperative of long-term growth. Without sustained economic growth, both our current account and federal budget deficits will continue to deteriorate, leading to an inevitable decline in Canadians’ living standards.

There are two main drivers of long-term economic growth. One of them is population growth. The government has taken action on this. Increasing high-skilled immigration is to be applauded, but an aggressive immigration policy will only work if we boost the other driver, productivity, thereby raising wages and living standards. The policy trap here is to confuse raising nominal GDP with GDP per capita, the latter being far more important for our living standards.

Increased productivity – output per worker – is the most important driver of economic growth. Recent experience suggests this is very hard to do. We need to pursue measures that will raise productivity in all sectors. In addition, and this is politically more challenging, we need to focus on expanding the sectors that hold the most promise for raising Canada’s productivity.

A country’s industrial composition matters a great deal. Certain sectors generate significantly higher output per employee and can increase productivity at a faster rate. Advanced industries are key to this goal. These sectors combine significant R&D investment and a highly qualified work force.

Sectors that invest heavily in technology and innovation tend to be more productive than others. A country with an advanced manufacturing base using artificial intelligence, robotics, genomic medicine and advanced computation will yield significant productivity gains. This is where the new frontiers of economic competitiveness are being drawn. The political economy of semiconductors fabrication is not the same as the one for manufacturing shoes or T-shirts. One is being developed hastily, the other not so much.

Canada has a significant structural current account deficit in advanced industries, signalling a weakening of our economic competitiveness. It indicates we are not able to generate sufficient income from high-value exports to pay for our imports of advanced goods.

Canada can compete in advanced industries. We should be proud of our Canadian global champions in aerospace, agrifood, energy and automotive, all advanced industries. The problem is we don’t have enough of them.

British cabinet minister Michael Gove stated in a recent speech: “Rather than being an entrepôt, a bazaar and a duty-free exchange, a strong economy must also make, manufacture, create, innovate and shape.” He was referring to the British economy, but this applies just as much to Canada.

This is where modern industrial policy comes into play. It is a high-stakes game because politicians will often use industrial policy to justify all kinds of government interventions that have proven to be ineffective. As former U.S. Treasury secretary Larry Summers observed: “I like industrial policy advisers how I like generals. The best generals are the ones who hate war the most but are willing to fight when needed. What I worry about is the people who do industrial policy love doing industrial policy.”

Targeted policy design and execution are paramount. We need to mobilize our human capital, create a modern science and technology architecture capable of converting intellectual capital into expanding our advanced industries and high-tech manufacturing, build proper transmission channels of public R&D to industry and create a regulatory and tax environment conducive to capital formation. In the current circumstance, the worst policy decision would be to take the easy road of spreading subsidies across sectors and all regions of the country.

Getting to the right policy outcomes is more important than political expediency. Addressing these challenges will require policy work that will go well beyond one budget.

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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

The Canadian Press. All rights reserved.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

The Canadian Press. All rights reserved.

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