- Inflation and a tightening labour market threaten to
spillover into 2023, despite recent economic progress.
- Housing affordability will become more of an issue with
rising interest rates and inflation threatening to put a lid on the
construction industry for the foreseeable future.
- Despite challenges, Canadian businesses have an opportunity
to benefit from the United States'
Inflation Reduction Act and climate change commitments.
- Prairie provinces have played a key role in supporting the
economy due to growing global demand for energy and rare
metals.
TORONTO, Oct. 3, 2022
/CNW/ - RSM Canada ("RSM"), a leading global provider of
audit, tax and consulting services focused on middle market
businesses, today launched its third 2022 edition of 'The Real
Economy, Canada' – a quarterly
report that provides Canadian businesses with analysis and
insights on the country's complex economic conditions.
As governments and industries around the world grapple with
inflation, rising costs and a breadth of other economic hurdles,
the latest edition of The Real Economy,
Canada examines how Canada's economy is faring at the moment, and
what key issues and opportunities businesses need to be aware of in
the coming months.
Key findings in this quarter's report include:
Recession talk is pre-mature, though economic headwinds are
having an impact.
- The Canadian economy has bounced back strong from pandemic
lockdowns, as pent-up consumer demand and government support
have fueled GDP growth in every quarter since the third
quarter of 2021.
- However, inflation and a rising unemployment rate, combined
with persistent labour and housing shortages present elevated risk
that Canada could enter a
recession early next year.
- Inflation will take a while to slow despite potential summer
peak, as the war in Ukraine grinds
on and the labour market remains tight.
- Businesses should expect the Bank of Canada to continue raising rates for the rest
of the year rather than easing them prematurely.
Canada will need to
accelerate its immigration goals to address long-term labour and
productivity problems.
- Declining labour force participation rates, an aging population
and declining fertility rates mean that Canada must rely on immigration – rather than
natural growth – to replenish the labour pool.
- Canadian policymakers are aiming to bring in more than 400,000
immigrants per year between 2022 and 2024 following the growth
immigration has spurred in the millennial and Gen-Z workforce.
- Immigrants are also shown to increase productivity rates,
something Canada cannot afford to
ignore as labour productivity in Canada might fall to last among countries in
the Organisation for Economic Co-operation and Development in
just a decade.
- However, Canada must
streamline the accreditation process if it wishes for skilled
immigrants to fill the labour gaps that are most glaring, such as
in the health care industry.
Higher interest rates have cooled Canada's housing market, but demand remains
high.
- The construction industry has been hit hard by rising interest
rates and the resulting slowdown now threatens to make Canada's housing shortage more
acute.
- Rising rates, combined with inflation, threaten to put a lid on
housing construction for the foreseeable future, potentially
further worsening the housing affordability crisis in Canada.
- While most industries gained jobs, the construction industry
lost over 23,000 in April and June, despite the red-hot labour
market.
- However, the Canada Mortgage and Housing Corporation's new
mortgage loan insurance program is giving developers access to
mortgages with more favourable financial terms, which incentivizes
them to build more affordable housing and energy
efficient housing projects.
Canada will stand to benefit
from the United States' Inflation
Reduction Act and green energy transition.
- This legislative and financial commitment by Canada's closest trading partner provides
Canadian companies with some certainty as to where they can hang
their hats from an economic development perspective.
- Canada's mining and
manufacturing sectors will be well-positioned to benefit as they
provide the products and minerals necessary to facilitate the clean
energy transition, particularly when it comes to electric vehicle
development.
- Though Canada's climate change
strategy has been fairly robust, the IRA and the resulting
opportunities will help provide a clearer picture of how to
economically build and scale clean energy industries.
Canada's industrial sector
is reaping the benefits of strong global demand.
- The Prairie provinces have been leading the
economy because of growing global demand for energy
and rare metals.
- Canadian industrial production grew over five per cent
year-over-year in the second quarter, well above the
pre-pandemic level, and is expected to end the year on a high
note.
- However, industrial production may diminish in subsequent
months as global markets anticipate a recession and consumer
demand slows.
"Despite a robust recovery from the lockdowns of the COVID-19
pandemic, Canadian economic growth will continue slowing down due
to persistent inflation and an historically tight labour market,"
says Tu Nguyen, economist and ESG
director with RSM Canada. "But the real long-term challenge
will be the labour shortage, with declining worker participation
hitting the health care, hospitality and food services industries
particularly hard."
Nguyen continues: "There's also a fundamental shift in
the demographic of Canada's labour
force, causing policymakers to explore ambitious immigration goals
to address the labour gap. But government, industry associations
and organizations will actually need to go further and streamline
the accreditation process so that workers educated abroad can fill
much-needed roles in Canada. Only
then can Canada hope to have more
meaningful growth in labour supply and productivity."
For more information on RSM Canada's 'The Real Economy:
Canada', or to download the
report, please visit their webpage.
About RSM Canada
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clients, colleagues and communities through world-class audit, tax
and consulting services focused on middle market businesses. The
clients we serve are the engine of global commerce and economic
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Canadian member firm of RSM International, a global network of
independent audit, tax and consulting firms with 51,000 people
across 123 countries. RSM Alberta LLP is a limited liability
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accounting services. RSM Canada Consulting LP provides consulting
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SOURCE RSM Canada