Most provincial economies are in store for a protracted slowdown, according to the Conference Board of Canada’s 3-year outlook.
Key findings of the research include:
- The population boom is masking a deeper productivity problem;
- The tapped-out consumer sector will hold back the economy in all provinces, but particularly Ontario and British Columbia;
- The Bank of Canada’s campaign to rid the economy of excess inflation has yielded results—but has required a booster dose of rate hikes. The result will be an extended period of flat economic performance ahead, peppered with a couple of quarterly contractions in GDP;
- The economy’s past infatuation with housing investment has turned out to be a curse rather than an underlying strength. Higher borrowing rates are steadily working their way through the system as mortgage terms expire, sapping consumers’ future spending potential;
- The fight against inflation has made progress but is not over yet. Interest rate increases have yet to fully flow through to borrowers;
- Strong commodity markets are helping the resource provinces, but production interruptions have hit output in Newfoundland and Labrador and in Saskatchewan;The Maritimes are being powered by in-migration and a tourism rebound;
- Slow population growth in Quebec is constraining headline GDP, but on a per capita basis the province is outperforming the rest; and
- Bright spots are appearing for business investment in Central Canada, but optimism is not widespread.
Pavel Danilyuk
“Spending is a hard habit to break. The Bank of Canada’s campaign to rid the economy of excess inflation has yielded results—but has required a booster dose of rate hikes. The result will be an extended period of flat economic performance ahead, peppered with a couple of quarterly contractions in GDP,” said the report.
“Whether Canada’s economy is technically in a recession (defined all-too-often simplistically as two consecutive quarters of negative real growth) in the short term is not the point. The net result will be an economy underperforming relative to pre-pandemic times.
“The pool of savings that have sustained the Canadian consumer finally looks like it has run out of its capacity to sustain overall economic growth. Against the grain, households spent eagerly in the early part of 2023—on durables and on supporting housing prices—but there is now not much left to draw down. Nominal growth in total consumer spending of 8.6 per cent in the first quarter means spending has virtually closed the gap with disposable incomes. The unprecedented levels of savings built up during the pandemic are no longer letting this segment—responsible for three-quarters of GDP— defy gravity.”
The report said the economy’s past infatuation with housing investment has turned out to be a curse rather than an underlying strength. Higher borrowing rates are steadily working their way through the system as mortgage terms expire, sapping consumers’ future spending potential. Meanwhile, much-needed housing supply continues to be throttled by the high costs of building and moving. At least labour markets look resilient, because if they weren’t, higher joblessness would generate a lot more forced home sales—with deeper cascading effects through the rest of
the economy.
“Inflation is at least slowing to a rate much closer to the Bank of Canada’s targets. The last push, however, will be the hardest now that temporary commodity price and Ukraine war-induced effects have passed through the system. We expect interest rate reductions will begin early next year,” said the report.
“The problem for later in the forecast period is Canada’s demonstrably poor record of business productivity growth—the central spark to enhancing living standards. The population boost, both in permanent and non-permanent residents, has filled labour markets and satiated job vacancies, but with little immediate impact on output per worker. Population numbers have distorted the headline economic numbers, making output look better than it really is. So, while we see total output stalling in the next few quarters, the per capita measures—which better reflect the situation for ordinary families—are considerably worse.
“With the crash, recovery, and stall in the recent past and near-term future, we don’t expect per capita real GDP in Canada to get back to pre-pandemic levels from the fourth quarter of 2019 until some time in 2026.”
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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