Canada’s next government will have to address a difficult set of economic challenges – some new, some familiar to a pandemic-weary country, some seemingly intractable. Critical decisions will have to be made about the future of energy, trade and the digital economy against a backdrop of rising debt and persistently high inflation. The major economic issues that the coming government will face are:
The most pressing economic issue remains the pandemic. High vaccination rates in Canada have allowed businesses to reopen over the summer, with workers preparing to return to office this fall. But the delta variant of the virus is creating uncertainty. Alberta, the province that was farthest in easing pandemic restrictions, declared a health emergency last week and took strict measures to fight the virus.
Canada’s economy has rebounded since the spring of 2020, when the first round of lockdowns and plunging oil prices led to the sharpest contraction in history. But there are still 1,56,000 fewer jobs than in February 2020, and recent statistics from Statistics Canada suggests the recovery may not be as far off as previously thought. Meanwhile, COVID-19 continues to disrupt global supply chains, driving up shipping prices, making it difficult to source manufacturing inputs and weighing on exports.
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The most important public health decisions will continue to be taken at the provincial level. But the incoming federal government is faced with important choices about border restrictions and vaccination requirements, particularly for transportation. It will also have the delicate task of shutting down support for businesses and individuals – moving from broad-based relief to targeted support for the hardest-hit sectors – without triggering a wave of bankruptcies and layoffs. — Mark Rendell
Canada’s labor market is in a strange state. It is still far from a full recovery, requiring hundreds of thousands of people to get back to work. But companies say they are struggling to fill positions. Discussions about low-wage work, and the extent to which the pandemic is reducing incentives to support income, obscure an ongoing issue for employers: a lack of skills.
According to survey results from the Canadian Federation of Independent Business, small businesses say the number 1 thing stopping sales and production is a lack of skilled labor. This is a typical response that predates the pandemic and will likely end it as well. Recently the Royal Bank of Canada The report estimates that more than 700,000 skilled traders are expected to retire by 2028. Some of the worst shortages will be for industrial mechanics, boiler makers and welders – key roles in reviving the country’s infrastructure, the report said. In addition, the pandemic has exposed another long-standing shortage: nurses. As of June, there were about 109,000 vacancies in health care and social support, a sector that often has the most vacancies. Canada will need a bold policy prescription to ensure it has enough people in the right jobs. – Matt Lundy
Government aid for individuals and businesses during the pandemic led to an unprecedented increase in the public debt. After a deficit of $335 billion last fiscal year and $138 billion this year, the federal debt is expected to reach $1.2 trillion this year, which is about 48 percent of GDP, according to parliamentary budget official estimates. Is. Neither of the major parties has promised to rein in significant spending or raise taxes substantially.
With interest rates at record lows, the cost of meeting the rising debt load remains manageable, especially when compared to the debt scare of the 1990s. But interest rates will inevitably rise in the coming years as central banks back up against inflation and withdraw stimulus. This will increase debt-servicing costs as the bonds roll over.
In addition, all parties are relying on optimistic economic growth projections to reduce public debt relative to the size of the economy over time. Strong growth is not guaranteed, especially as the population ages and Canada continues to struggle with low productivity growth. As Bank of Montreal chief economist Douglas Porter put it in a recent note to clients: “Governments that no longer repair finances, during an economic recovery, may leave them vulnerable to the next big challenge.” – Mark Rendell
Inflation hit an 18-year high of 4.1 per cent in August, driven by business reopenings, supply-chain disruptions and a jump in prices from last year. Central bankers argue that inflation will subside once the supply chain returns to normal and the “base year” effect is over. More skeptical economists point to massive fiscal and monetary stimulus during the pandemic, to suggest that price pressures will remain elevated for some time.
The Bank of Canada has insisted on patience, saying it will not raise interest rates until the labor market recovers and the country’s economic output returns to normal – something that will not happen in the second half of 2022. Happening till But five months later, with inflation running above its 1-percent to 3-percent target range, the bank may reconsider its timeline to remove the stimulus and raise rates.
Governments generally refrain from commenting on central bank decisions. However, the bank’s five-year mandate is set for renewal this year, giving the incoming government an opportunity to weigh in on the overall direction of monetary policy. The point is what to maintain…