Escalating Population Growth Cushions Economic Downturn, Yet Future Remains Uncertain

OTTAWA – BUSINESS – Canada’s economic horizon appears rather dim with the exception of a notable surge in population growth, states a new study by The Conference Board of Canada. Following a minor downturn in real GDP during this year’s second quarter, experts forecast a continued decline for the next two quarters with a modest rebound early in 2024. The projections suggest a mere 0.9 per cent real GDP growth for 2023 and a further 0.6 per cent in 2024.

Consumer Spending Takes a Hit

Ted Mallett, the Director of Economic Forecasting at The Conference Board of Canada, highlighted a significant slowdown in consumer spending, particularly among those with high mortgage burdens. The forecast paints a grim picture for Canadian consumers, who are expected to face rough waters due to rising borrowing costs. Mortgage interests alone are predicted to claim an additional two per cent of disposable income in less than a year and a half.

“Consumer spending has slowed dramatically, and we’re seeing a more pronounced decrease among those who are more heavily mortgaged,” according to Ted Mallett, Director of Economic Forecasting at The Conference Board of Canada. “We anticipate Canadian consumers will be in for a rough ride as a result of higher borrowing costs, with mortgage interest taking an additional two per cent share of disposable income in less than 18 months.”

Labour Market Cooling Off

The once cushioned labour market, thanks to high job vacancy rates and resilient consumer spending, is now feeling the pinch. The withdrawal of these economic buffers now allows for a stronger transmission of monetary policy effects to the labour market. Despite some resistance, wage growth is anticipated to slow down further in the upcoming quarters due to an expanding labour supply against a backdrop of weakening labour demand.

Household Spending Stagnates

The report noted a stagnation in real household spending growth in Q2 2023. The scenario could have been direr without the backing of robust population growth. Consumers are cutting back on discretionary spending amid higher interest rates and escalating prices, showing signs that the previous pent-up demand is buckling under financial pressures. The near-term outlook suggests consumer price growth will linger above the Bank of Canada’s target.

Housing Crisis Looms

The housing affordability and availability crisis is capturing the attention of both citizens and politicians. With the next federal election on the horizon, housing issues might dominate the discourse. While the federal government has proposed GST elimination on purpose-built rental housing construction, provincial counterparts are bringing their solutions to the table. Despite these efforts, meeting the growing residential needs remains a daunting challenge.

Government Finances Under Scrutiny

As Canada transitions into a post-COVID stimulus phase, government finances remain a topic of concern. With inflation-fighting funds drying up, focus has shifted towards addressing structural economic issues like housing construction and capital investment support.

Global Economic Outlook

On the global front, headline inflation seems to have peaked in major economies, and a 2.3 per cent global GDP growth is anticipated for 2023. However, uncertainties surrounding inflation and interest rates pose risks to the global economic outlook. The Conference Board of Canada believes that major central banks may not need to raise interest rates significantly beyond current levels.

US Economy Holds Steady

Despite a restrictive monetary policy, the US economy continues to exceed expectations. The effects of numerous aggressive interest rate hikes since March 2022 are now becoming apparent. Although inflation remains above target, it is on a downward trajectory. The Conference Board of Canada forecasts a slowdown in US economic growth for the first half of next year, albeit avoiding a recession, with real GDP expected to grow by 2.1 per cent in 2023 and 1.2 per cent in 2024.

The Conference Board of Canada’s findings underscore the need for strategic interventions to steer Canada’s economy towards a sustainable growth path amid global economic challenges.