2019 The Way We Were vs Now
One of my fav lenders (RMG) did an economic update during the recent Bank of Canada announcement comparing 2019 to now, I found it quite interesting. Here are some highlights:
- Canada Government Debt: 2019 it was $685.45 billion, currently $1.173 trillion – an all time high (record low was $14.83 billion in 1962).
- Both the US Fed Funds Rate vs Bank of Canada Rate = 1.75% in 2019.
- Canada Prime in 2019 = 3.95%. Today = *6.45% (with most lenders, TD is 6.60%).
- United States Unemployment Rate: August 2019 3.60%, currently 4.30%.
- Canada Unemployment Rate: December 2019 5.60%, currently 6.40%.
- Canada Unemployed Persons: August 2019 1.170 million, currently 1.407 million. Over 300,000 more unemployed people in Canada since Jan. 2023.
The Economics. Where are we now?
- Per capita GDP has fallen to 3.1% below 2019 levels.
- Population Growth in Canada was 3.2% in 2023. 2.1 Million consumers added to the market in past 2 years.
- Canadian Consumer is 60% of Canada’s GDP.
- Consumer spending continues to show signs of stress as many wait for the impact of the BoC rate cuts to filter through to mortgage interest costs. Interest rates are still high.
- Canadians renewing fixed-rate mortgages in 2024 still face significantly higher rates, which will cut into broader purchasing power. However, as the BoC continues its path to lower rates, mortgage holders will feel some relief and at least partially restored purchasing power upon renewal. We expect consumption will remain soft (relative to still-strong population growth) over the second half of the year.
David Rosenberg Economist “Firstly, how anybody can define a soft landing when on a real per capita basis, the economy here (Canada) has been contracting for five straight quarters and is running negative 2.4 per cent year over year,” he said. “So, if that’s your definition of a soft landing… You redefine what a soft landing is.”
Is Canada already in a recession? Most people think so and when you consider GDP on a per capita basis, we’ve had five straight negative quarters of growth. Two negative quarters is a technical recession. Five is a continuous one. Economists use overall GDP numbers, so they think we’re doing great at 2.1% growth.
Some economists therefore, think we’re fine. As anticipated, on Sept 4th the Bank of Canada lowered to 4.25%, which translates into a 6.45%* Prime. Canada’s imports are down over $1 billion in July. Less imports = less stuff, translates into less discretionary spending. 60% of Canada’s economy is the consumer and when they’re buying less, that translates into potential job losses down the line.
The central bank noted that the extension of its cutting cycle was warranted as excess supply in the Canadian economy continued to put downward pressure on inflation. Also aligning with the need for looser financial conditions, the Governing Council noted that the labor market continued to slow in recent months, although wage growth remains elevated when compared to unit productivity.
The Bank of Canada is concerned about wage growth, but that wage growth appears confined only to public sector employment. When 22% of the workforce works in the public sector and we have $40 billion deficits combined with overall poor productivity we have a situation where the Bank of Canada is concerned and that leads to potentially higher rates than we’d otherwise have. And that’s unfortunate.
Source: RMG Economic Update & BofC Announcement
Candace Perko, Mortgage Broker
