Economic update: Canada could enter a recession next year

Economic update: Canada could enter recession next year next

and Anne Caroline Desplanques MISE À DAY

OTTAWA | The Trudeau government is raising the possibility of a recession for the first time at the start of next year, we learn in its Fall Economic Update released on Thursday. 

< p>In its “pessimistic” scenario, Ottawa projects that Canada will enter “a mild recession in the first quarter of 2023”, it is written in the document of just under 100 pages.

“It's important to be frank with Canadians,” Finance Minister Chrystia Freeland said at a press conference. The reality is that the global economy is slowing down, and there is a lot of uncertainty.”

This forecast indicates that the unemployment rate would peak at 6.9% and that GDP growth will plunge into negative territory (-0.9%) next year.

The Bank of Canada is trying to curb runaway inflation with sharp interest rate hikes since March last, which has the effect of slowing down the economy.

According to its economic scenario, which it considers more likely, Ottawa still expects to avoid a recession next year, thanks to weak GDP growth of 0.7% in 2023.

Help

Finance Minister Chrystia Freeland's Update expects some additional new support for some Canadians to help them cope with the rising cost of living.

The cost of these enhancements amounts to $6 billion.

They are aimed primarily at students and workers (see below).

The federal government is also injecting billions, including 600 million this year, to improve its customer service. The last few months have revealed deep flaws in the delivery of services by the federal public service, both in the processing of immigration applications and passports.

  •  Listen to the Latraverse-Dumont meeting with Emmanuelle Latraverse on QUB radio:  

Cautious?

The Liberal government maintains that it was careful not to add fuel to the fire of inflation with exaggerated spending.

“The government's aid was carefully designed to avoid worsening inflation,” it read.

The fact remains that the Trudeau government spent $45 % of its additional revenue earned since its spring budget, thanks to revenue linked to inflation.

Because while the Economic Update forecasts some $6 billion in new spending this year, Ottawa has extended more of $7 billion in a host of measures since last spring.

Minister Freeland believes that she has found the right balance between help and caution.

“We had to find a balance between fiscal prudence and compassion,” said Ms. Freeland.

Robert Asselin, vice-president of public policy for the Business Council of Canada, did not share this reading. According to him, the sums would have been better spent reducing the deficit.

“His narrative on budgetary prudence is a bit of rubbish,” slices this former economic adviser to Paul Martin and Justin Trudeau.

Projected deficits

2022-23 –> $36.4 billion 

2023-24 –> $30.6 billion 

2024-25 –> $25.4 billion 

2025-26 –> $14.5 billion 

2026-27 –> $3.4 billion 

2028-28 –> $4.4 billion surplus 

Ottawa plans billions in aid for workers and students

1- Help for low-income workers and students

Responding to NDP demands, the Liberal government is pulling out the checkbook for low-income workers and students.

  • $4 billion over six years to boost the Canada Child Benefit workers (ACT) which affects some three million low-income Canadian workers. This sum will allow an employee earning $25,000 per year to receive advance payments of $200 from ACT each quarter, in addition to an additional amount of $600 at the end of the year. 
  • $2.7 billion over five years to permanently eliminate interest on all Canada Student Loans and Canada Apprentice Loans, including those in repayment. This will allow student borrowers to save an average of $410 per year.

2- Hello? Passport Canada?

Criticized from all sides in recent months for the mediocrity of its service delivery, the federal government will spend $1.6 billion to try to do better. The sum must make it possible to:

  • Speed ​​up the processing of Employment Insurance and Old Age Security applications and speed up the release of payments.
  • Reduce the wait times at Service Canada and Canada Revenue Agency call centres.
  • Providing faster services to veterans
  • Hire additional border services officers to reduce border pressure. 

3- Resisting the American wave

Americans have invested US$369 billion and advanced just as much in loans to attract global investments that will allow it to make a 180-degree green shift, through the Inflation Reduction Act. To maintain its competitiveness, Canada must act quickly, urges economist Robert Asselin, vice-president of the Business Council of Canada.

However, the government's response has been “fairly timid” so far, he worries. In the spring budget, Finance Canada announced $15 billion for the launch of the Canada Growth Fund, promising more concrete action on the economic update. But the only novelty announced Thursday is a new refundable tax credit for companies that invest in clean technologies, such as solar, wind and hydroelectric power generation systems, or zero-emission industrial vehicles.