In recent months, Canada’s economic landscape has experienced notable shifts that are raising concerns among households and businesses alike. This blog post explores the current economic situation, delving into declining consumer confidence, changing demographics, and their potential implications on interest rates and the housing market.
Consumer Confidence Hits Lows: Consumer confidence in Canada has taken a significant hit, dropping to levels reminiscent of the initial COVID-19 lockdowns and the depths of the financial crisis. According to the Conference Board of Canada, 37.2% of Canadians reported that their finances worsened in September, up from 34.6% in August.
Retail and Wholesale Sectors Affected: The impact of declining confidence is evident in the retail and wholesale sectors, where confidence levels plummeted to 43% and 45%, respectively. This decline can be attributed to consumers’ reluctance to spend, affecting businesses’ bottom lines.
GDP Growth Stagnates: Canada’s GDP report reveals stagnant growth in July and only a modest 0.1% uptick in August. What’s concerning is that this growth is barely keeping pace with the population growth rate, which stands at 0.3% per month. As a result, real per capita GDP is contracting at the fastest rate since the financial crisis, excluding the COVID-19 period.
Changing Demographics: Canada has seen a significant shift in its demographic landscape. Q3 recorded a record growth in population, with an increase of 358,000 people, or 0.9% growth YoY. This brings the year-to-date population growth to 1.16 million, or 3%. Of note, there has been a 46% increase in the number of non-permanent residents living in Canada in the past year.
Impact on Job Market: The influx of temporary workers and international students has contributed significantly to Canada’s population growth. However, the demand for temporary workers is rapidly falling, with job vacancies decreasing from nearly 1,000,000 in 2022 to 700,000 in September. The recent diplomatic tensions between Canada and India are particularly noteworthy, as 40% of temporary workers and students since 2021 hail from India (as reported by the National Post).
Implications for Interest Rates: Considering the economic landscape, it appears that further rate hikes are becoming less likely unless inflation unexpectedly surges. The combination of declining consumer confidence, a stagnant GDP, and changing demographics suggests that the central bank may adopt a cautious approach to interest rate increases in the near term.
Shifting Housing Market: With the demographic shift and increasing net interprovincial migration to more affordable provinces like
Alberta, the housing market is experiencing changes. Alberta has seen over 55K net interprovincial migrants year-over-year, while Ontario has recorded an exodus of 40K net interprovincial migrants to the more affordable provinces.
The current economic conditions in Canada, characterized by falling confidence, shifting demographics, and stagnant GDP growth, have significant implications for the financial landscape, including the likelihood of future interest rate hikes. As we move forward, keeping an eye on inflation and demographic trends will be crucial for both policymakers and individuals navigating the Canadian economy.