Beyond the Headline Indicators: Three Things That Impacted Canada’s Economy in 2023
Inflation and interest rates once again dominated economic news in 2023. After the Bank of Canada aggressively raised the policy interest rate in 2022 to curb inflation, the Canadian economy was expected to slow down considerably and even potentially plunge into a recession in 2023. To the surprise of many, Canada’s economy showed signs of resilience, particularly in the first half of the year. While the unemployment rate did increase from 5 to 5.8 per cent over the course of the year, total employment grew every month in 2023 (January to November), except for two small contractions in May and July.
Canada’s real gross domestic product (GDP) expanded in the first and the second quarters of 2023 (+0.6 and +0.3 per cent, respectively), before contracting in the third quarter (-0.3 per cent). The data for the fourth quarter will determine if Canada recorded a technical recession in the second half of the year.
But headline indicators only tell part of Canada’s economic story in 2023. Labour strikes, wildfires, and population growth had significant impacts on the economy this year.
Several collective bargaining agreements were up for renewal in 2023. After two years of high inflation, unions across the country sought wages and conditions gains to account for the reduced purchasing power of workers. Hundreds of thousands of workers were (or still are) on strike at some point in 2023. At the time of writing, more than 400,000 public sector employees remain on strike in Quebec.
Strikes impacted economic activity. Employment and Social Development Canada estimates that strikes have resulted in more than 2.2 million person-days not worked in 2023, the highest level in the last ten years. This was reflected in economic data. For instance, the strike in the federal public service in April generated a one per cent contraction in the GDP of the public administration sector according to Statistics Canada.
Strikes also disrupted supply chains. Statistics Canada reported that the port workers strike in British Columbia impacted 13 per cent of manufacturing plants in Canada in July by causing raw material shortages and transportation disruptions. In October, a short strike temporarily halted shipping via the St. Lawrence Seaway. In both instances, the federal government received calls from business groups to impose back-to-work legislation, but the Minister of Labour managed to get the unions and employers back to the negotiating table to hammer out deals.
The effects of climate change were on full display in 2023 as Canada saw a record year for wildfires. More than 18 million hectares burned, which is more than the size of New Brunswick, Nova Scotia and Prince Edward Island combined.
From British Columbia to Nova Scotia to the Northwest Territories, wildfires hit the entire country, forcing tens of thousands of people to evacuate their homes. The federal government had to deploy the military to assist with firefighting and evacuation efforts. Even parts of Canada that were not directly impacted by fire activity felt the effects with low air quality preventing outdoor activities.
The disruptive impacts of wildfires on the economy were reflected in GDP data for May and June as some sectors posted contractions as a result. This was the case for mining, quarrying and oil and gas extraction (several sites had to stop activities and evacuate workers) as well as rail transportation and accommodation.
Canada grew rapidly in 2023. Between July 1st and October 1st, total population increased by 430,635 to reach 40,528,396. This was the second highest quarterly growth in absolute terms since 1946.
International migration accounted for more than 95 per cent of the country’s population growth. In addition to the 107,972 immigrants Canada welcomed, an inflow of 464,604 non-permanent residents was recorded between July 1st and October 1st.
Immigration presents an important demographic and economic opportunity for Canada, but the rapid pace of population growth in 2023 put pressure on the housing stock of cities. With higher interest rates keeping many potential first-time homebuyers in the rental market, immigration is fueling increased demand for rental units in particular (most immigrants and non-permanent workers rent when they first move to Canada). According to rentals.ca, the average asking rent in Canada was $2,174 in November 2023, up 8.4 per cent year-over-year and 20.7 per cent compared to November 2021.
Record-high population growth is currently fueling a debate in economic and policy circles around how to look at headline indicators. Some argue that real GDP per capita is a more adequate measure and that, in this regard, Canada is not growing as fast as other nations.
Taken together, labour strikes, wildfires, and population growth all impacted Canada’s economy in 2023. With ongoing labour protests, climate change exacerbating wildfire risks and continuously strong immigration, all three dynamics have the potential to also shape 2024.
Something to Watch in 2024: Artificial Intelligence
As mentioned in StrategyCorp’s Year-in-Review & 2024 Look-Ahead podcast, artificial intelligence (AI) and more specifically generative AI took the world by storm in 2023. Organizations of all kinds are looking at how to integrate AI-powered solutions in their operations while also protecting themselves from the sophisticated cyberattacks that AI enables.
Governments around the world are grappling with how to regulate AI to protect citizens while not stifling innovation and adoption. The European Union is the farthest ahead with a provisional agreement on the Artificial Intelligence Act. In Canada, the federal government will continue to push the Artificial Intelligence and Data Act through Parliament in 2024 as part of bill C-27. The proposed legislation has been described as both too restrictive by industry and not strict enough by civil society groups.
As companies invest in AI, an important economic question remains as to whether the Solow Productivity Paradox will apply: will we see AI everywhere except in productivity statistics?
Sebastien Labrecque is the Chief Economist and Executive Director of StrategyCorp’s Institute of Public Policy and Economy.