Canada: Economic Challenges

August 2024:   The Canadian economy faces significant challenges, marked by the worst growth among 50 developed economies since 2019. This troubling trend is largely due to a decline in capital investment, both from domestic and foreign sources, creating an increasingly unattractive business environment.

 

Main Points:

 

• Under Prime Minister Justin Trudeau's government, business investment has plummeted by one-third, while government spending has nearly doubled, now comprising almost half of the country's GDP.

 

• Bankruptcy filings surged by 40% last year, and nearly half of Canadians lack emergency savings.

 

• The Canadian dollar has depreciated 13% against the U.S. dollar since May 2021, increasing the cost of imports, with Canada importing US$277 billion worth of goods from the U.S. in 2023.

 

• In response, the government has expanded the public sector by approximately 180,000 workers in the past year, outpacing private sector job growth. One in three Canadians now works for the government, earning significantly more than their private-sector counterparts.

 

• Despite apparent control over general inflation, food and energy costs have risen substantially since the pandemic, partly due to the carbon tax. The average Canadian family now pays more in taxes than on housing, food, and clothing combined.

 

• High personal tax rates and stringent mortgage requirements limit homeownership, with the minimum income to qualify for a mortgage on an average house in Canada around $200,000.

 

• Housing prices remain high due to immigration policies outpacing home construction, particularly in Ontario.

 

• Options for average Canadians to safeguard their finances are limited until the next federal election in late 2025. However, investors can diversify by holding more U.S. dollars, investing in sectors like oil and gas, or considering more favorable jurisdictions.

 

 

In summary, the Canadian economy's current trajectory poses significant risks, with declining investments, rising public sector employment, and high costs for average Canadians. While the next federal election offers a potential for change, immediate actions for investors to protect their portfolios include diversifying into U.S. dollars and more resilient sectors.