The Canadian economy will experience a major slowdown, economists invited to talks with federal ministers during the winter retreat of Justin Trudeau’s cabinet ahead of the return to parliament next week said on Tuesday.
“We can expect the economy to slow down considerably. We can expect the unemployment rate to increase both here in Canada and in other jurisdictions such as the United States, Europe and the United Kingdom,” the official told a press briefing. Former Deputy Governor of the Bank of Canada and Senior Fellow at the Griswold Center for Economic Policy Studies at Princeton University, Carolyn A. Wilkins.
There are “serious risks,” added Kevin Milligan, an economics professor at the University of British Columbia, also a guest at the cabinet table, which is meeting for the second of three days in Hamilton, Ontario. The economic situation will have an impact on interest rates, inflation and government revenues, he insisted.
He said that with an economic downturn “highly likely,” policymakers should keep in mind to make sure the EI system is “ready” and “consider another round of income transfers to low-income people.” income in a targeted manner”.
On Monday, a joint report by the Business Council of Canada and the firm Bennett Jones indicated that the budgetary forecasts presented in the last federal budget and the fall economic statement were probably too optimistic.
The report, written by former Bank of Canada Governor David Dodge and former Liberal financial policy adviser Robert Asselin, concluded that the government’s forecasts were based on a “plausible but optimistic” set of economic assumptions and interest rates, which however are unlikely to materialize.
The authors warn that there is a “high probability of a deeper recession” this year and that Liberal promises in all sectors will cost much more than expected — whether it is funding health care, national defense , infrastructure improvements or the fight against climate change.
For the Bank of Canada to reach its 2% inflation target and prevent price increases from stabilizing at 3% or 4%, Ms. Wilkins estimated that “we will need an increase in unemployment”.
The unemployment rate is currently around 5%. However, before the pandemic, “people thought that the natural rate […] where there is unemployment [et] where it does not create inflation is around 6%,” she noted.
When it comes to spending, the government should keep in mind that $5 billion to $7 billion in spending can equate to about 25 basis points of interest rate.
But not all expenses are created equal, she said. Moreover, according to Professor Milligan, a possible agreement with the provinces on long-term health funding should not have a huge impact in the short term.
A “turbulent” year
The economy is the “priority” of the Trudeau government, maintained the Liberal lieutenant for Quebec, Pablo Rodriguez, during a brief scrum with the press.
“Every day, we talk about the economy, whether at caucus level, between colleagues or at cabinet level because before being a deputy or a minister, we are human beings: we put gas in our char, we’re going to buy cereal. We know what’s going on and we’re working on it,” he said.
The next year will be “turbulent” for the economy, said the federal associate finance minister, but Randy Boissonnault insists that the government still has leeway for major priorities, including a new agreement on health care with the provinces.
“There is a lot of uncertainty, admitted Mr. Boissonnault Tuesday morning. So we’ll be watching that every step of the way as we prepare for the budget. [de 2023]. We still have fiscal space to be able to do the things we need to do, but the fiscal space has tightened. »
Mr. Boissonnault pointed to the war in Ukraine, interest rates and inflation as among the issues causing both uncertainty and damage to the economy.
Mr. Boissonnault said that his government will consider the report from the Business Council of Canada and many others when it makes its economic forecasts before the next budget.
He believes that the budgetary reality will be somewhere between the best and worst scenarios presented in last fall’s economic statement.
Finance Minister Chrystia Freeland is expected to deliver an economic update to cabinet later Tuesday.
Health transfers
Prime Minister Justin Trudeau said before this cabinet meeting that the cost of living and Canada’s competitiveness were his priorities.
The ongoing talks with the provinces for a new agreement on federal health transfers are also one of the issues that could modify the government’s spending forecasts. The provinces have asked for billions for the next decade to support their health care systems, on the verge of collapse.
Ottawa insists on responsibility for any new health care funding and Trudeau has not publicly committed to meeting the demands of provincial premiers.
Trudeau began his day Tuesday by meeting Hamilton Mayor Andrea Horwath, who is also the former leader of Ontario’s New Democratic Party. Mr. Trudeau and Ms. Horwath mentioned housing as one of their main topics of conversation.
Housing prices and the lack of affordable housing in particular have become a key issue for governments at all levels.
The Liberals trail the Conservatives in most recent polls and Hamilton’s choice for retirement is electorally strategic. This city is in one of the most bitterly contested regions of the country, and the Liberals must do well there if they want to stay in power.
The Liberal cabinet also received a sharp reminder on Monday of the strong opposition it faces in the “freedom convoy”.
A small protest greeted Trudeau on Monday afternoon upon his arrival in Hamilton. A larger group, around forty, returned in the evening. Protesters waved flags, shouted and set off fireworks — some of which appeared to be aimed at the building.
Most of the protesters dispersed around 11 p.m., but at least one spent most of the night honking, reminiscent of the tractor-trailer horns that blocked much of downtown Ottawa for three weeks, almost a year ago.
– With information from Mia Rabson