Heather Scoffield: Housing, groceries and travel were huge headaches for Canadians last year. Here’s why 2023 might not be any better
Right now, we’re at that nasty spot where inflation is high, food and homes feel unaffordable, and the economy is slowing rapidly before our eyes. Not to mention a new strain of COVID-19 on the loose. Economists are forecasting not much growth at all this year before coming back to life in 2024, and their lookaheads are laced with foreboding.
But we don’t just have to sit here and take it. Despite the churn and the fact that some of the difficult dynamics originate outside of the country, we — individuals, governments, businesses — don’t have to be passive. Here are the biggest challenges facing the Canadian economy in the coming year, and some initial thoughts on how to ride them out.It’s still far too high, at 6.8 per cent in November, with some underlying signs of stubbornness. Economists believe it has peaked, but there’s not much sign of it waning quickly. It’s especially hard on low-income Canadians, whose savings have been drained by high prices over the past year and are now having to make tough choices. The Bank of Canada’s job is to control it, but carefully, so as not to squeeze so hard as to drive the economy into a deep recession. Expect perhaps a small increase in rates early this year, and then a pause.They’re rising, but not keeping up with inflation, so we collectively suffered a substantial pay cut last year. In 2023, there’s a chance employees could make up for lost ground by demanding pay increases, says economist Craig Alexander. The Bank of Canada has raised the alarm repeatedly about a wage-price spiral that has yet to materialize, he adds. But he says there’s a way for workers and their employers to keep up with prices while not triggering terrible inflation: one-time raises or bonuses, or — in the case of multi-year contracts — big increases only in the first year. Watch for public-sector unions to set the tone.: Ouch. Grocery prices were accelerating in November, food bank usage is up, and low-income households are hit the hardest. Even if prices level off, food will remain expensive, and that makes for a prickly political problem. The NDP has found support for parliamentary hearings into grocery chain profits, and the Competition Bureau is investigating, too. A simpler method to help consumers is to look at income supports finely targeted to low-income families, says Scotiabank economist Rebekah Young.The forecasts are all over the map for the real estate market in 2023 after steep declines in 2022. Royal LePage sees prices flattening out towards the middle of the year, and then rising a bit. But Alexander believes the correction is only half over, and that consumer bankruptcies will rise, too — albeit from a low base — as mortgage costs pile up. Young points out that governments want to make housing more affordable, especially for low-income families, but fixes are slow and often marginal. Expect housing to be a political hot potato again this year.Ask anyone stranded by Via Rail or Sunwing over the Christmas break and you’ll know the dysfunction of travelling in 2022 will persist in 2023. Bad weather, unpredictable surges in demand, companies scrambling to make up for lost pandemic revenue and scarce labour are some of the culprits, and none of those will be fixed overnight. We’ll see more parliamentary hearings urging a regulatory approach, and a push by customers for better service.Companies’ pre-tax profits rose 36 per cent in 2021 and then another 13 per cent in 2022.The big question is whether employers will keep their workforces intact, eyeing growth down the road, or if they will lay off people over the next few months. Labour is notoriously in short supply, not just now but for the long term, economists say. It would make sense for firms to keep payrolls intact and use their profits from the past year to invest in technology, machinery and equipment, setting themselves up for the long haul., says Eurasia Group. Political instability, populism and economic turmoil south of the border are spreading here, with implications for Canada’s competitive position, interest rates and labour conditions. The next federal budget will be key in how Ottawa deals with giant American subsidies in the electric-vehicle and clean-energy industries. And the Bank of Canada will have to contend with currency pressure and a hawkish U.S. Federal Reserve, which could mean our interest rates may rise more than otherwise warranted.Canadians’ net worth dropped half a trillion dollars in the third quarter of last year , the biggest decline since the 2008 days of the Great Financial Crisis. Projections for 2023 are not great either, but equity markets are well known for detecting “green shoots” from a mile away. If they’ve properly priced in the slowdown in the first half of the year, they’re primed to reflect signs of life later on this year, says Young. But that’s a big “if” and we’ll have to steel ourselves for a rough ride over the next few months, she adds.
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