The end of government income support plans has combined with soaring inflation and aggressive monetary austerity to create a bitter, even indigestible cocktail for businesses and households. On this third anniversary of the start of the pandemic, only the death of the more than 51,000 Canadians who have died from COVID-19 carries a higher cost.
This perspective on the true cost of the pandemic can be found in the introduction to a study by Statistics Canada taking a socioeconomic look at the three years of the health crisis, which officially began on March 11, 2020.
We observe that on the macroeconomic level, after the shutdown of complete sections of the economy in the wake of the outbreak of the pandemic, economic activity resumed a erratic course for most of 2022 under the action of latent if not pent-up demand, to be followed by a deceleration at the end of the year under the impetus of sectors sensitive to interest rates. In December, real GDP was up 2.7% from the level observed before the pandemic.
In a March 9 presentation to the Manitoba Chamber of Commerce, Senior Deputy Governor of the Bank of Canada, Carolyn Rogers, highlighted Canada’s good positioning within the G7 in terms of GDP growth, inflation and employment. To then warn that “we continue to have one of the lowest productivity growth rates among the G7”. And Canadian households remain among the most indebted compared to those in these countries.
Statistics Canada measured that after rising sharply at the start of the pandemic, labor productivity fell for seven consecutive quarters before rising in the second and third quarters of 2022. In the meantime, unit labor costs jumped 13% from the pre-COVID-19 baseline.
Companies didn’t have it easy
The economic situation was mainly dominated by increased tensions in the labor market in a context of labor shortages and a record number of vacancies, which the pandemic has exacerbated. Labor shortages, distorted supply chains, rising input prices and rising borrowing costs: So many companies have not had it easy. The number of active businesses had fully returned to pre-pandemic rates by the end of 2021. Thereafter, the number of closures exceeded the number of openings since the summer of 2022, with the latter falling in November to its lowest level. low in more than two years. Added to this is a marked increase in business insolvency in 2022.
Households even less
For individuals and households, the end of government income support programs was followed by an explosion in the cost of living and a sharp rise in interest rates. Net savings of the bottom 40% of income-earning households fell by about 12% in the third quarter compared to the start of the pandemic, as economically vulnerable households recorded levels of debt above average.
“Pressures on the cost of living, especially for food and housing, have remained elevated, with prices continuing to rise at a faster rate than wage growth. Statistics Canada observes a marked increase in the proportion of spending on groceries. “In December 2022, food whose prices increased by 10% or more accounted for two-thirds of food expenditure. The agency illustrates, as an indication, that prices increased by 8.6% between the end of 2014 and the end of 2019. The increase was 15.8% in just two years, between December 2020 and December 2022.
Housing in crisis
In terms of housing, although property prices have begun to retreat from their 2022 highs, the average cost of a home in Canada remained, at the end of 2022, 33%, or $179,000, to levels seen before the pandemic. Add to the equation an 18% increase in mortgage interest costs last year. With the results that “the Affordability Index of the Bank of Canada, which measures the difficulty of accessing the property, reached its highest peak since 1990”.
“Rising borrowing costs have caused many potential owners to leave the market, which has made an already very difficult rental market worse. This problem of housing affordability and rising rental prices has been amplified by a demographic phenomenon, largely linked to immigration.
Thus, three years later, the total number of insolvency files filed in January 2023 exploded by 33.7% compared to January 2022, i.e. an increase of 33% in consumer files and 55.4% in those of businesses, according to data from the Office of the Superintendent of Bankruptcy. During the 12-month period ending January 31, the total number of insolvency files increased by 15% compared to the corresponding period ending January 31, 2022. It was up 14.3% among consumers, 39.1% among businesses.
And to think that, according to the Bank of Canada, it appears that it usually takes 18 to 24 months for key rate changes to affect the economy. Monetary tightening started in March 2022.