Canada’s Economic Status

by Maj (ret'd) CORNELIU. CHISU, CD, PMSC, FEC, CET, P. Eng. Former Member of Parliament Pickering-Scarborough East As this unusually cool and wet weather continues to limit our enjoyment of our short summer, we need to be aware of the similarly cooling economic status of our country. With all the rather bleak goings-on in the world, we have to make the best decisions as we can to secure our own future. With the interest rates high and the cost of living increasing at an alarming rate, we need to be aware of what is going on around us in order to make the best decisions for our lives. The health of our economy is important for us to be able to maintain a good standard of living. Canada faces lingering post-pandemic structural issues driven by inflationary pressure, weak investment, and tepid productivity growth. Furthermore, Canadian households face ongoing short- and medium-term economic challenges to keep up with the rising cost of living. As a result, Canada's economic growth is projected to be 1.3% in 2023 and 1.5% in 2024. These figures are below the G20 averages of 2.2% and 2.7% for 2023 and 2024, and on par with the OECD average. The Covid-19 crisis has negatively impacted Canada's fiscal balance, with the federal government's net debt-to-GDP ratio rising from 31.2% in 2019–20 to 42.4% in 2022–23. Due to high-interest rates and an uncertain economic outlook, Canada requires, at least in the medium run, a clear road map for managing debt to head off risks to fiscal sustainability and reassure capital markets. The month of July brought us some discouraging news. Canada’s unemployment rate rose for a third-straight month in July as the economy shed 6,400 jobs, a softening which economists say could impact the Bank of Canada’s next interest rate decision. According to Statistics Canada the unemployment rate increased 0.1 percentage points to 5.5 per cent in July. This marks the first time the unemployment rate has increased for three consecutive months since the early months of the COVID-19 pandemic. “The soft July employment report is just the latest arrow in the quiver of signs that the economy is losing momentum,” Doug Porter, chief economist and managing director of economics at BMO, said in a note last week. Statistics Canada stated that surprisingly, job losses were led by the construction industry, while the greatest job gains were made in health care and social assistance. According to Statistics Canada, employment fell among core-aged men (25 to 54 years old) by 0.4 per cent, and increased among male youth aged 15 to 24 by 0.9 per cent. There was little variation in employment among young and core-aged women, and among men and women aged 55 and older. More than half of the unemployed (53.6 per cent) had been out of the labour force immediately before in the count for July, while 38.7 per cent had left or lost a job in July. Employment increased in Alberta, New Brunswick and Prince Edward Island while it declined in Manitoba and Saskatchewan. All other provinces posted little change in July, as per Statistics Canada. The rising unemployment comes as high interest rates weigh on the economy, making borrowing more expensive for both businesses and consumers and if we are not careful, the possibility of a recession cannot be excluded, with unforeseen effects. The softening in the labour market will have some implications for the Bank of Canada’s next interest rate decision, which is supposed to occur on Sept. 6, 2023. However, the central bank will have additional data to consider, including the July inflation report and June GDP figures, which are due in the coming weeks. As we have seen, the central bank hiked its benchmark rate to five per cent on July 12 in another effort to cool the Canadian economy and bring inflation to its two per cent target. Inflation cooled to 2.8 per cent in June, down from 3.4 per cent in May. Logically, the employment figures, combined with the latest inflation report, makes a strong case for the Bank of Canada (BoC) not raising its interest rate further. “Looking beyond the next rate decision, we suspect that the bank may be done raising rates, although still-firm wage and core price growth means that rates are likely to stay high for long,” Porter added. In this respect, we observe that down south, U.S. employers added 187,000 jobs last month. That led America’s unemployment rate to dip to 3.5 per cent from 3.6 per cent in June in a sign that the U.S. job market remains resilient. So, in Canada unemployment is rising when in the U.S. it is dropping. This issue should be of concern in view of our strongly intertwined economies. In conclusion, as economic activity appears to be moderating amid sharply higher borrowing costs, and the full effects of prior rapid increases in the interest rate have yet to be felt by Canadian consumers and businesses we should not anticipate a bright forecast. The people at the controls in government and public service will need to act responsibly in order to avoid bringing further hardship onto Canadians. What is your opinion?