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News Analysis: Where’s Canada’s Recession?

(Photo by Adrian Wyld)

A Strong Job Market

Canada’s job market is looking stronger than ever. With unemployment holding steady at 5% in March and an addition of 35,000 new jobs. As a result, expectations of a recession are increasingly coming into question.

March’s latest job reports indicate that Canada’s latest employment numbers indicate that the country’s labour is tight. Meaning that those looking for jobs are seemingly getting them as companies are looking to hire more workers to fill the demand from consumers. 

According to StatsCanada, the transportation, warehousing, finance, insurance, and real estate industries have seen a spike in hiring in March. While the construction and natural resource industries have seen job losses. 

In addition, for the first time since the start of Canada’s inflationary period, March saw hourly wages outpace inflation. StatsCanada indicates that hourly wages were up 5.3% compared to March’s inflationary measure of 5.2%. With inflation expected to come down steadily month by month to a normal rate of 2% by the end of 2023, wages are likely to outpace inflation starting this month. 

Canada’s economy also holds steady in terms of pure GDP. The country's economy has not shrunk in either the month of January or February. Seeing that Canada has added jobs and has exceeded expectations in its resilience. The economy may instead grow rather than shrink, as many economists previously predicted. 

This comes as the Bank of Canada has paused its recent hikes on policy interest rates. If the economy starts picking up again with more powerful paycheques and more people spending with their new jobs, this may inadvertently fuel inflation, thereby triggering another interest rate hike. 

Moreover, Canada’s employment rate among core-aged women (age 25-54) has also hit a record high at 82%. StatsCanada also indicates that employment for core-aged women with children under 6 is also up at 76.2%, which is nearly 2% higher than 12 months prior. StatsCanada’s survey attributes this increase to affordable and access to childcare, financial pressures, and a tight labour market.

And although the federal government is an exception, many provincial governments have seen budget surpluses this year due to high commodity prices in agriculture, natural resources, and oil prices. Budgets across the country have also made it imperative to reduce the debt burden they’ve accumulated as a result of the pandemic. The provinces of Alberta and Saskatchewan have contributed billions to paying off their debt.

The federal government in particular has contributed the most support during the covid recession but has indicated that its finances are still sustainable for the long term, an analysis from the Parliamentary Budget Office shows

Government Projections

Budget 2023’s economic outlook gives more numbers that we can contextualize to point to Canada’s economic resilience. 

Budget 2023 indicates that real GDP growth in Canada is the highest among G7 countries from Q4 2021 to Q4 2022. The amount of real household disposable income per Capita is also the highest in Canada among the G7. The population growth in Canada also far outpaces the US and Europe according to the same document. General inflation is also among the lowest in the G7, being only slightly above Japan and France but below the US and the UK. 

However, it isn’t all roses for Canada. Food prices are up by nearly 12% compared to 12 months ago. Gasoline prices are down by nearly 5% compared to a year ago in March. But still up compared to pre-pandemic levels. As a result, business and consumer confidence are at an all-time low; only being beaten out by the 2008 financial crisis and the peak of the covid recession in 2019. 

According to the government’s projections, a downside scenario could reduce nominal GDP by $41 billion each year compared to levels indicated by the Department of Finance’s recent private sector survey for economists. On the flip side, nominal GDP could be $41 billion higher in the upside scenario compared to the survey’s levels. 

This same survey also indicates that private-sector economists are expecting a “shallow recession.” Nevertheless, as Canada’s economy has consistently shown its ability to repeatedly exceed economic expectations, Canada may barely clinch out of a recession. 

Government Policy

At the same time, the federal government has made significant policy initiatives to bolster the economy in several ways. This includes nearly $56 billion in tax credits for the cleantech industry, a national childcare system, and a $47 billion cash injection to improve Canada’s healthcare sector,

Budget 2023 taxation reform for financial institutions, an increase to the minimum tax rate, and a 2% tax on share buybacks on publicly traded Canadian corporations. These measures would raise government revenues by nearly $9 billion over 5 years and provide a continuous stream of revenue after that. This revenue can then offset the $13 billion National Dental Care Program the government intends to implement by 2025. This program will indirectly subsidize Canada’s dentistry sector while improving healthcare outcomes at the same time.

Perhaps for Canada, a combination of a strong economy and a good social safety net may seldom point to the country’s potential to be an even stronger powerhouse in the future. As population growth rates in Canada are hitting records and economic outlooks are in the green, the Canadian economy is planting good fundamentals before it eventually takes off. 

Edited by: Niko

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