Like the weather this winter Canada’s economic forecast has been gloomy, but not severe. It is largely a good news story.
Inflation Remains Key Concern
The fight against inflation has been at the centre of it all. The Bank of Canada has been raising interest rates in an effort to reduce demand and allow supply to catch up.
It seems to be working, but the inflation fight isn’t without its casualties and that causes uncertainty. The economy and employees do not like uncertainty.
Work Worries
A recent survey by the Angus Reid Institute suggests that half of Canadians under the age of 55 are concerned that they, or someone in their household, could lose their job because of the economy. A majority of under 55s say they could not handle a sudden expense of more than $1,000 in the coming month. This is especially true among mortgage holders and renters.
Receiverships Rise
Businesses are also feeling the pain. There has been a spike in receiverships in the property development industry. Higher interest rates, increased costs and a slower real estate market are putting projects in jeopardy, according to experts. But it’s not entirely the economy’s fault.
"A lot of it comes down to mismanagement, as to not realizing the length and complexities of the development process," says Lauren White, executive vice-president of CBRE's land services group.
The last time receiverships were this bad was likely the early 1990s, she said.
White expects the trend will start to reverse in about 6 months.
Receiverships are a way for secured lenders to have the court appoint someone to take control of the property and either liquidate it or otherwise maximize the value of the assets. It is generally seen as a last resort.
Insolvencies Increase
Business insolvencies are also on the rise. The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) found that insolvencies jumped by 41.4% in 2023, compared to 2022. That marks the largest annual increase based on 36 years of records from the Office of the Superintendent of Bankruptcy (OSB).
The increase was expected with many businesses having fallen behind on repayments of pandemic loans, including the federal government’s Canadian emergency business account (CEBA).
Consumer insolvencies rose 23% last year, according to CAIRP.
That may sound alarming, but the numbers are still below pre-pandemic levels.
Winning the Inflation Fight
These reports tend to draw attention away from an economy that is fundamentally sound, and policies that are reducing inflation.
Inflation is down from an 8.1% high in June 2022. It stood at 3.4% in December of 2023.
GDP growth has weakened, as desired by the Band of Canada, but remains positive. Canada has avoided a recession and hopes remain for a “soft landing”.
Unemployment is up modestly but that’s mainly driven by immigration and more people actively looking for work.