Q: As we head into the fall and legislatures across the country return, what do you see as the key economic issues facing parliamentarians?
As we head into the fall and legislatures across the country return, there are three major economic issues that will shape the political and policy landscape. It is important to note that while there are some regional differences in terms of magnitude, the cost of living, global economic uncertainty, and labour and skills shortages are having an impact coast-to-coast.
Cost of Living
It is hard not to start with the high cost of living. There has been lots of talks about inflation finally peaking recently. However, we are not going back to a two percent inflation rate anytime soon. The Consumer Price Index (CPI) was up 7.6 percent year-over-year (YoY) in July, with food and shelter prices still rising. The Bank of Canada is forecasting YoY CPI inflation to come in at 7.5 percent for the fourth quarter of 2022.
Canadian households feel the impacts of higher prices everyday. I love pointing out that the majority of millennials and the entirety of gen Z had never seen prolonged inflation above 4 percent in their adult life. This matters because they are very engaged voters and, just like other Canadians, they will expect parliamentarians to do something to help them cope with inflation.
From a public policy standpoint, inflation is a wicked problem. It can generate higher tax revenues like we are seeing now, but governments find themselves with their hands tied as they cannot deploy this money in the economy without unavoidably fueling inflation. A very surgical approach is needed, but this can be politically sensitive and hard to achieve when you have opposition parties urging for immediate broad ranging actions.
Global Economic Uncertainty
As central banks around the world try to curb inflation and achieve a “soft landing”, interest rates are rising and so is global economic uncertainty. On the other side of the border, the United States are already in a de facto “technical recession” and the economic forecasts for China were substantially slashed. While Canada has not experienced an official contraction yet, the annualized GDP growth rate for the second quarter of 2022 (3.3 per cent) came in below what the Bank of Canada had forecasted. On a monthly basis, early indicators used by Statistics Canada show a real GDP contraction of 0.1 per cent for July.
Just like households and businesses, Canadian parliamentarians cannot ignore the current economic uncertainty. If the much talked about recession risks were to materialize, legislatures across the country could see their policy priorities change really quickly as a result. At the federal level for instance, would the government delay rolling out certain major programs like dental care to instead deploy the money to provide direct and immediate support to Canadians like we saw during COVID?
Labour and Skills Shortages
Lastly, I would be remiss if I did not mention labour and skills shortages as another major political economic issue. It has been in the news the entire summer and there is no doubt elected officials heard about shortages from their constituents on the barbecue circuit.
Shortages and resulting job vacancies hinder the ability of businesses to operate at full capacity and expand. This has real impacts on major sectors of the Canadian economy like housing where there is anecdotal evidence that labour shortages are slowing down construction.
While the economy overheating definitely contributes to this dynamic, I really don’t think an economic downturn will magically resolve the issue for good. I mentioned that economic turbulences might shift policy priorities so I do worry that parliamentarians might put this issue on the backburner if the economy takes a turn for the worst. That would be a mistake in my opinion because addressing labour and skill shortages requires a committed and deliberate approach. It won’t happen overnight and there is no silver bullet. It is a multi-faceted problem (e.g., immigration, training, credential recognition) and every government across Canada needs to do its part and develop forward-looking and innovative ways to address shortages.
Sebastien Labrecque is the Deputy Director and Chief Economist of StrategyCorp’s Institute of Public Policy and Economy.