Construction workers rig materials for a lift during the COVID-19 pandemic in Toronto on Sept. 29, 2020.
Nathan Denette/The Canadian Press
The Canadian economy is poised for strong growth in 2021 as COVID-19 vaccinations reach a critical mass of people, and restrictions are gradually lifted – the start of a return to normal after a destructive year for workers and businesses.
The script for next year isn’t written, but economists are largely agreed on the rough outline. Employers will add to headcount. Hard-hit service industries will be released from crippling lockdowns. And households, sitting on billions in excess cash, will unleash some pent-up demand. With companies and consumers feeling more upbeat, growth is the key theme for 2021.
To that end, real gross domestic product is projected to rise by 4.4 per cent next year, based on the median estimate from private-sector economists. That would unwind some of the 5.7-per-cent decline that’s expected for 2020, once final numbers are tallied.
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“Fundamentally, there wasn’t anything wrong with the economy before this all began,” said Douglas Porter, chief economist at Bank of Montreal. “And because of the tremendous fiscal support, I do think [the economy is] relatively well-coiled to come back when health conditions do allow.”
He did inject a note of caution, however: “The economy is going to be slogging uphill in the next couple of months. …It’s going to be a tough grind through the winter.”
Indeed, 2021 will get off to a rough start. Much of the country is grappling with a second wave of the coronavirus, and targeted restrictions could be in place for months more. Furthermore, millions of underemployed people are still relying on government support to pay the bills, while thousands of businesses find themselves in a similar position.
As such, economic growth will be tepid – or worse, non-existent – in the early months of 2021. Bank of Canada Governor Tiff Macklem has warned of a small backslide in the first quarter.
But the second quarter (April through June) is when many on Bay Street expect the tide to turn.
In essence, the economy will be guided by inoculation. Canada began its vaccination campaign in mid-December, and upwards of three million people will receive their shots by the end of March, according to Ottawa’s initial timetable. That should allow policy makers to begin easing restrictions by March or April, several economists said.
The second quarter is the “pivot point on growth being much stronger,” said Beata Caranci, chief economist at Toronto-Dominion Bank.
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Broadly speaking, households are well-positioned to guide the recovery. The federal government’s support programs have more than replaced income lost through layoffs. Combined with weaker consumption, savings have skyrocketed. A recent CIBC Capital Markets report said households and businesses are sitting on no less than $170-billion in excess cash.
In its fall economic statement, the federal Liberals said they would enact measures to help “unleash” these savings, referring to them as “preloaded stimulus.”
A big question for 2021 is how much of those savings people spend – and whether the government should do anything to coax money from chequing accounts.
“If you think back a year ago, what was the biggest concern about the Canadian economy? The vulnerability of the household sector and the weakness of household finances,” Mr. Porter said. “It’s not necessarily a bad thing that [households have] built up this extra cushion of savings.”
The federal government will unveil in 2021 the details of an economic stimulus plan costing as much as $100-billion over three years. Spending will be tied to “fiscal guardrails” that have yet to be outlined, but are based on labour market performance. (Canada has recovered around 80 per cent of its pandemic job losses.)
“I suspect [Ottawa] won’t need to spend as much as perhaps they are anticipating on that front,” said Ms. Caranci, pointing to the relative health of household balance sheets. “If people are income-protected during the crisis, it would suggest you have to do less after the crisis.”
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Her bigger concern is corporate health. Business insolvencies have been especially low during the economic downturn, thanks to government programs that supply no-interest loans and subsidies for rent and wages. Many supports are slated to run until June.
“Once you take away those supports, next year might show where the weaknesses are among businesses,” Ms. Caranci said. “That should really be where [the federal government has] their sights, because if you don’t have businesses, you don’t have workers.”
In his final speech and press conference of 2020, the Bank of Canada’s Mr. Macklem focused on strategies to strengthen international trade. He noted, however, that a stronger loonie – largely due to a broad-based weakening of the U.S. dollar – was making things difficult.
“There’s no question, this appreciation of the [Canadian] dollar is, on the margin, making our exporters less competitive,” he said. “It’s material. It’s on our radar screen.”
At the same time, Mr. Macklem urged the corporate sector to make investments that enhance productivity and competitiveness. He noted that borrowing costs will be “low for a long while.” The bank has pledged to keep its key rate at a record low 0.25 per cent into 2023.
“This seems an opportune time for companies to look at how they judge the rate of return on potential investments – the so-called hurdle rate,” he said. “Taking a longer-term approach to capital investment could unlock a myriad of viable growth opportunities.”
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The coming year will vary by region. In a recent forecast, TD Bank said real GDP would expand in all provinces, ranging from 3.1 per cent in Prince Edward Island to 5.6 per cent in Ontario.
“On the margin, provinces with a greater exposure to hard-hit services and tourism industries should benefit more,” the report said. “A swifter rebound in commodity prices should also provide support to the Prairie provinces.”
With a report from David Parkinson
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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.
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