Economy

Opinion: Our falling living standards are not just an economic risk

Published

1 year ago

November 1, 2023

Hotel workers march and protest as they continue their strike in Los Angeles, Calif. on Oct. 25.MIKE BLAKE/Reuters

Craig Alexander has served as chief economist at Deloitte Canada, the Conference Board of Canada and Toronto-Dominion Bank.

In recent months, there has been considerable attention given to the evidence that the standard of living of Canadians is falling. The benchmark reference for this trend is the decline in after-inflation income per person – that is, real GDP per capita. This worrying development reflects still-elevated inflation, weakening economic growth, and strong population gains fuelled by immigration.

This negative trend helps explain why consumer confidence is at levels typically observed during recessions, even though unemployment remains low and the economy has avoided a deep contraction. Simply put, Canadians don’t care about abstract economic growth – they care about the quality of life that they and their families are experiencing. Regrettably, the outlook is grim. The Organization for Economic Co-operation and Development projects that Canada will have the weakest growth in real GDP per capita of any advanced economy out to 2030 – this is unacceptable.

However, the standard-of-living challenge is not isolated to Canada, nor is it simply an economic problem. It has the potential to fuel great upheaval and instability across the world.

The World Bank estimates that between 75 million and 95 million additional people have been pushed into extreme poverty by the pandemic and the inflationary fallout. The International Monetary Fund says global economic growth is expected to decelerate to around 3.1 per cent over the next five years – down from 3.6 per cent before the pandemic and down from 4.9 per cent before the financial crisis in 2008. Three-quarters of the slowdown will come from weaker per-capita growth, with 80 per cent of countries experiencing this trend.

The IMF stresses that the weaker growth in living standards is not primarily because of demographics, but rather is the product of weaker productivity growth and less capital accumulation. There is also a trend toward deglobalization that runs the risk of tempering economic growth, raising consumer prices and keeping interest rates high for longer.

This is important because it can create material political and economic risks. When people don’t feel like they are getting ahead, they demand change. When people are frustrated that they are doing their part in terms of working hard and raising their families, but their expectations of living standards are being disappointed, they lose trust in governments and the economic and financial system.

These feelings become acute when there are perceptions of rising inequality. We saw this after the 2008-09 financial crisis and it helped to fuel the deeply corrosive populism in the world today. The frustration of voters is something that opposition political parties at home and abroad are counting on leveraging in future elections, while governments will try to deflect the exasperation toward domestic businesses or toward foreign governments or firms.

If the IMF forecast is right, their economic outlook is one that could spark considerable political change. In and of itself, there is nothing wrong with the transition of political power – quite the contrary, it can be healthy. The risk is what policies incumbent governments promise voters or what opposition parties pledge to get elected.

Public frustration can result in policies that sound attractive to citizens but are unlikely to address the root cause of the poor growth in living standards. Too often, such initiatives run the risk of making things worse.

The right approach for all countries is to pursue structural reforms, such as: reducing regulatory barriers, fostering more competition in domestic markets, creating incentives for scaling businesses, improving the efficiency of the tax system, investing in infrastructure, better leveraging international trade opportunities and incenting greater private-sector investment. All of these help to boost productivity.

The problem is that such policies often lack public appeal. People think productivity means working harder or producing more with fewer workers. But the reality is that greater productivity is the key to better outcomes for workers and families. Since the end of the Second World War, roughly 80 per cent of the increase in living standards in the advanced economies has come from higher productivity.

While Canada needs to pursue policies to improve growth in domestic living standards, it needs to be mindful that the international slowing of real income per capita growth could lead to greater geopolitical risks that, in turn, might create additional economic risks that Canada must navigate or respond to.

A starting point is to improve foreign relations. For example, Canada is perceived as a country that has shirked its North Atlantic Treaty Organization commitments, there are strained relations with China and India, and relations with the United States are far from ideal. Canada needs to position itself for potential political, economic and financial risks that might arise from weaker growth in global living standards.

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Economy

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

Published

2 days ago

November 8, 2024

Anne Joseph

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.

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Economy

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

Published

3 days ago

November 6, 2024

Anne Joseph

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.

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Economy

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

Published

4 days ago

November 6, 2024

Anne Joseph

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.

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