The Conference Board of Canada, in its Canada 3-Year Outlook, released on Tuesday, forecasts the country’s overall output growth will slow to a near standstill until spring 2023.
Real GDP is forecast to reach 3.0 per cent in 2022, followed by only a 1.2 per cent gain in 2023.
Key findings of the research include:
- Consumers will take a spending pause as a result of higher prices and loan costs
- The commodity price boom sparked by the war in Ukraine will dissipate, but it has left producers with hefty net savings to support hiring, wages, and investment
- The Canadian labour market appears to have run out of steam with three consecutive months of job losses and signs of more turbulence ahead. In August, the unemployment rate rose for the first time in seven months
- Capital spending in the oil and gas sector is set to increase by 47.5 per cent this year. Looking more broadly at investments in Canada, private non-residential investment has been picking up steam over the past few quarters, and the momentum will continue through 2023
“The main forces shaping Canada’s economic outlook have changed little over the past several months, but they have evidently become more intense. Chief among them is the more rapid uplift of interest rates by central banks in response to sticky consumer price inflation,” said the report. “The result will be a virtual stoppage of economic growth in this country. Whether the economy steers past a recession will depend on the robustness of its shock absorbers.
“Recession is a loaded term because it implies the economy as a whole flips from hot to cold for an extended period. The definition will be hard to apply, though, to the tepid conditions expected in the months ahead, as elements holding up the economy will largely offset the forces dragging it down. The negative influences are still here— war, COVID-19, inflation, rate hikes—as are their many spin-off implications to housing, spending, and investment. Canadian consumers will play a reduced role in driving economic growth over the next year or two. Falling home prices—expected to correct by 18 per cent from peak to trough—will severely limit the spending power of highly leveraged mortgage holders. For the rest, diminished home equity and higher borrowing rates will put a dent in their willingness to finance spending through credit. Spending on durable goods and discretionary expenses will be affected the most. Wages are starting to rise and will be closing the gap with inflation. Increases to the consumer price index will be 3.8 per cent in 2023 and 2.2 per cent in 2024, while weekly wage growth will average 4.5 and 2.7 per cent in those years.
“It takes a lot of negativity to keep an economy down, however, and there are some meaningful influences on the supportive side. The commodity price surge from the spring of 2022 may be losing some momentum, but it gave Canadian businesses a profit windfall from which they will be able to prop up balance sheets and get at least a running leap through the expected dip in demand conditions. Net corporate savings, which are profits after taxes and dividends are paid out, reached a record annualized $156 billion in the second quarter of 2022, and while that may have been a war-induced peak, we expect them to remain well in positive territory over the next few years. Healthier corporate balances will also help insulate labour markets from the effects of any slowdown. Employment trends tend to lag output downturns because employers are generally reluctant to disrupt the skills profile of their workforces. Job vacancy rates also continue to run well ahead of historical norms.”
(Mario Toneguzzi is a veteran of the media industry for more than 40 years and named in 2021 a Top Ten Business Journalist in the world and only Canadian)
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