But as the finance minister in a minority government that will one day soon have to face the electorate, Chrystia Freeland must do her best to satisfy a majority.
Critics, including some in the suffering airline industry, complained that this week’s fiscal plan does not spend enough on them. Fiscal conservatives worried about the deficit and wonder how Freeland will pay for what she has spent already. Pundits are already demanding to know details about how she will fulfil her plan to restart the economy once the coronavirus has been driven off by vaccines.
Despite Freeland’s tone of confidence, the disruptive impact of COVID-19 has generated many long-term uncertainties.
Even as she scrambles to solve current and pressing economic problems, the list of potential future pitfalls is long and the effects of each are highly uncertain. The problem — for her, for us and for business — is that this recession is so different from the economic crises we have suffered in the past. None of us know how things will turn out.
Borrowing is easy
Despite a projected deficit of more than $380 billion and a debt expected to soar past $1 trillion, Freeland, who is also deputy prime minister, has reassured Canadians that payments on that debt remain affordable. But just as in your own household, debt is notoriously easy to run up and hard to run down.
While interest rates are low now and the U.S. Federal Reserve — which strongly influences rates here in Canada — has promised to keep them low until the economy bounces back, market forces are telling us that long-term commercial interest rates are on the rise.
A broker in Mumbai, India. Markets have been a bright spot as the economy has weakened, but some fear share prices have become disconnected from the real world. (Shailesh Andrade/Reuters)
Extraordinarily low interest rates have led to extraordinary borrowing by governments, businesses and ordinary Canadians — and some say we are reaching the limit.
Some financial observers, including Martin Wolf at the Financial Times, have warned that the world may be on the cusp of a sudden shift from 40 years of falling to rising inflation. If that were to happen, governments and their central bankers would be forced to decide whether to quell it with higher interest rates in spite of the effect on their own borrowing costs.
While Freeland said that her spending will be based on long-term borrowing locked in at current low rates, costs could rise. Just as you must periodically renew your mortgage, each year governments and companies must go back to the market to replace their portfolio of existing bonds as they come due, and that must be done at the interest rate when they do it.
So long as interest rates stay low and the economy continues to grow, Canadian personal borrowing — which Equifax just reported has hit a staggering $2 trillion — is nothing to worry about. A lot of that debt is backed by high and rising house prices. But rising rates and falling house prices, or a continuing recession that leads to job losses, could make that debt unbearable, damaging a crucial motor of the Canadian economy.
300-year recession
Canada is a trading nation, and even if the domestic economy continues to tough it out, it will be hard to prosper if our trading partners weaken.
Many countries around the world, including our nearest neighbour, continue to suffer from the economic impact of the pandemic — making things much worse than when a disaster hits a single part of the world, allowing other economies to help bail them out. Our trade partners may not be in a buying mood. Trade protectionism will be a temptation.
While economic growth slows and businesses go broke, among the bright spots have been financial markets that keep nudging new highs. Rising stock prices are cheering for those with cash invested, but there are growing fears that market darlings such as Tesla, up 600 per cent this year, may have become detached from the real economy.
A happy Elon Musk, CEO of Tesla, arrives at a European awards ceremony in Berlin on Tuesday. The company’s shares have risen 600 per cent this year. (Hannibal Hanschke/Pool/Reuters)
Some analysts worry that the current casino mentality cannot be sustained and will lead to a reckoning. With interest rates already at rock bottom and borrowing already so high, preventing damage to the crucial financial markets from a new panic will be harder than during previous bailouts.
This gloomy list of long-term potential worries for the finance minister is only partial. Some fear disruption to education will lead to a news skills gap and put an even greater wedge between the rich and the poor. Others fear a crash in the value of commercial property will have a lasting effect.
Lower immigration, a loss of entry-level jobs in restaurants and retail and a long-term hollowing out of the economy are only some of the effects that could make things worse.
But rather than just make us sick with worry instead of sick with COVID-19, the point is that in the wake of a major recession of the kind the world is facing now, there is no way that Chrystia Freeland or anyone else — no matter how smart — can tell us with any certainty how the economy will unfold over the next few years.
WATCH | From education to jobs, how to manage the pandemic’s financial challenges:
Personal finance expert Preet Banerjee answers viewer questions about the financial challenges brought on by the COVID-19 pandemic, including saving for school with limited job opportunities and whether or not people should prepare for an economic depression. 3:22
What Canada needs is a capable person in charge, a safe pair of hands, to help us make the best of a perilous and unknown future.
And there is no reason that future could not also include a strong recovery as new businesses take advantage of plentiful labour, less expensive office and retail space and a flood of pent-up demand to come back even stronger than before the pandemic struck.
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.
