With hawkish central bankers plowing ahead to get inflation under control, more economists are coming around to the idea that a soft landing for the economy is increasingly unlikely.
Since March the Bank of Canada has hiked its rate 300 basis points and is showing no signs of stopping.
“BIS research suggests front-loaded rate hikes ‘can help prevent a hard landing,’ said RBC senior economist Josh Nye in a report Monday. “But with policy makers pledging to do what it takes to rein in inflation, we think a soft landing is becoming a distant prospect.”
The policy statement, however, put paid to that theory. “Governing Council still judges that the policy interest rate will need to rise further,” it said, prompting many economists to hike their interest rate forecasts.
RBC, which had previously forecast a 25 bps hike in October, now expects a 50 bps increase next month and another 25 bps in December to take the rate to 4 per cent, up from its previous forecast of 3.5 per cent.
This comes even as the economy’s momentum begins to fade, said Nye. While Canada’s economy showed solid growth in the second quarter, most of it came early in Q2, he said. The labour market is also showing signs of slowing, with employment declining for a third month in a row and the jobless rate rising.
RBC expects recessions in Canada, the U.S., eurozone and U.K. in the year ahead. In Canada, the downturn should be moderate with the jobless rate rising 1.7 percentage points from trough to peak over the next year and a half, it predicts.
Oxford Economics also expects a 50 bps hike in October, followed by a moderate recession in late 2022, brought on by the impact of higher rates, the deepening housing correction and downturns in the U.S. and other economies.
“We have warned for some time that an overly aggressive Bank of Canada represents the largest downside risk to the economy,” said Tony Stillo, Oxford’s director of Canada economics. “We now think that such rapid tightening of monetary policy given Canada’s highly interest-sensitive economy, along with a deteriorating external environment, make a recession the most likely outcome for the economy.”
The majority of economists in a recent survey by Finder agree. Seventy-eight per cent now predict a recession, compared with 69 per cent in July and 50 per cent in June.
Most believe the downturn will come in the first quarter of 2023, but 11 per cent say Canada is already in recession.
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WORLD MOURNS Members of the public lay flowers in Green Park in London, England, on Monday following the death of Queen Elizabeth II. The Queen died at Balmoral Castle in Scotland on Sept. 8 and is succeeded by her eldest son, King Charles III. Dan Kitwood/Getty Images
Nadine Ahn, chief financial officer at RBC, will speak at the Barclays Global Financial Services Conference in Toronto
Statistics Canada to release its investment in building construction data
The Association of Construction and Housing Professionals of Quebec will host a debate on the theme of housing
At the Big Cities Caucus of the Union of Quebec Municipalities, mayors of the 10 Quebec major cities will hold a press conference to present their common demands to the next Quebec government in order to enable municipalities to deal with climate change.
Canadians household debt in relation to their income climbed higher in the second quarter as our debt grew faster than our earnings, Statistics Canada said Monday. Household disposable income rose to 181.7 per cent on a seasonally adjusted basis in the second quarter, up from 179.7 per cent in the first quarter. That means there is about $1.82 in credit market debt for every dollar of household disposable income in the second quarter. Today’s chart from Statistics Canada shows household credit market debt to household disposable income, seasonally adjusted.
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Sending your child to university can run you at least $25,000 to $30,000 to get through four years of an undergraduate degree for tuition alone. Add in residence, food plans and travel and you are looking at a bigger bill towards $100,000. Starting early with an RESP is a no brainer, but consider as well how your kids can contribute to education costs.
For tips on how to save for your children’s college, dip into the FP’s ongoing series that explores personal finance questions tied to life’s big milestones.
Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.
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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 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.
