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Chapter 2
The Road to Recovery

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To support Canadians during the worst economic crisis in nearly a century, the government rolled out unprecedented support to the economy. This support positioned Canada to come roaring back. The economy’s strong recovery so far has seen Canada exceed its target of restoring one million jobs and has recouped 106 per cent of jobs lost during the pandemic. Pandemic supports have also protected household and business balance sheets, which, in fact, have improved relative to before the pandemic.

There are, however, significant challenges ahead. The global phenomenon of inflation is having a real impact on Canadians’ lives and their worries about paying the bills. Rising prices are being driven by the unprecedented challenge of re-opening the world’s economy — something that has never had to be done before. Climate change has had a further impact, with floods in British Columbia further hindering supply chains and severe droughts in the Prairies, and around the world, increasing the cost of food. The Omicron variant of concern is contributing to further uncertainty about what lies ahead.

2.1 A Strong and Inclusive Economic Recovery

Last year, governments around the world and across Canada took rapid and unprecedented action to shut down economies in order to stem the spread of COVID-19. Businesses and workers made immense sacrifices, but Canadians did this to protect their communities and save lives.

The government’s COVID-19 economic response plan supported Canadians through the darkest days of the pandemic, stabilizing the economy, largely preventing economic scarring, and laying the foundations for a strong and inclusive recovery. This past spring and summer, as increasing numbers of Canadians got vaccinated, Canada and the world began the complex process of reopening their economies.

The turning off of the global economy, in 2020, was sudden and drastic. Safely turning economies back on and unwinding restrictions—while remaining vigilant against outbreaks—is a much more complex task, with global supply chain disruptions and related inflationary pressures posing a significant challenge worldwide.

So far, Canada’s recovery is faring well compared to previous economic downturns, in part due to the stabilizing effects of the federal government’s broad-based support measures, which positioned Canada for strong economic growth and job creation. Over the summer, many businesses began safely reopening and job creation surged, achieving—well ahead of expectations—the government’s commitment to create one million jobs. OECD projections suggest that by 2023, Canada’s recovery will be the second fastest in the G7. The government is committed to ensuring Canada has a full recovery that grows the middle class and builds a prosperous, more inclusive, more sustainable, and more resilient economy.

Looking forward, private sector economists expect solid growth in the year ahead as the Canadian economy continues to recover from the effects of the pandemic. However, COVID-19 is still here and there is still much unknown. The Omicron variant, and challenges resulting from the pandemic, including global supply disruptions, raise new uncertainties and have the potential to impact the speed of recovery and extend global inflationary pressures.

Safe and Steady Reopening of the Canadian Economy

The pandemic resulted in the deepest and fastest decline in economic activity in Canada since the Great Depression. In the face of this crisis, governments introduced emergency support packages to help avert an even sharper fall in output. This has minimized long-term economic scarring in the form of business closures and job losses that would have delayed and weakened the post-pandemic recovery. Canada’s fiscal policy response, consistent with that of many G7 peers, was proportional to the extent of the crisis Canada’s economy faced. Given the stabilizing effects of the programs on personal, corporate, and provincial and territorial finances, this extraordinary response has proven to be prudent fiscal management.

Canada’s economic recovery has been backed by solid underlying fundamentals, including improved household and corporate balance sheets, on average, due in part to significant fiscal policy support. Increased savings, reflecting fewer spending opportunities and government income supports, have enabled Canadians to pay down debt, which, in turn, has improved the resilience of household finances and overall credit quality. The government is aware that there are workers and businesses that continue to be affected by the pandemic and is moving forward on delivering targeted support. But we are also aware that Canada’s vaccination campaign and a significant build-up in savings by households and businesses could mean that a rebound in hard-hit services such as hospitality and tourism will exceed expectations (Charts 2.1 and 2.2). The ongoing pandemic and risk of variants of concern means that a degree of uncertainty remains.

Chart 2.1
Household Deposits during the Pandemic
Chart 2.1: Household Deposits during the Pandemic

Note: Last data point is 2021Q3.

Source: Statistics Canada; Department of Finance Canada calculations.

Text version
  Household deposits Without the pandemic counterfactual
2018
Q1
1385.8  
2018Q2 1401.6  
2018
Q3
1422.8  
2018Q4 1462.4  
2019
Q1
1476.1  
2019Q2 1498.2  
2019
Q3
1523.9  
2019Q4 1562.1 1562.1
2020
Q1
1601.4 1583.3
2020Q2 1693.5 1604.7
2020
Q3
1723.9 1626.5
2020Q4 1765.8 1648.5
2021
Q1
1772.4 1670.9
2021Q2 1814.8 1693.5
2021
Q3
1831.1 1716.5
Chart 2.2
Non-Financial Corporation Deposits during the Pandemic
Chart 2.2: Non-Financial Corporation Deposits 
during the Pandemic

Note: Last data point is 2021Q3

Sources: Statistics Canada; Department of Finance Canada calculations.

Text version
  Currency and deposits Without the pandemic counterfactual
2018
Q1
493.0  
2018Q2 499.9  
2018
Q3
505.0  
2018Q4 521.3  
2019
Q1
494.7  
2019Q2 512.8  
2019
Q3
536.2  
2019Q4 552.4 552.4
2020
Q1
601.4 561.2
2020Q2 653.0 570.1
2020
Q3
688.0 579.2
2020Q4 701.3 588.4
2021
Q1
713.0 597.8
2021Q2 760.5 607.3
2021
Q3
804 616.9319

Canada’s Economic Recovery Is Well on Track

The COVID-19 recession was the largest recession since the Great Depression. But the government’s COVID-19 economic response plan has helped engineer an economic turnaround with unprecedented speed, both relative to some of our peers and relative to previous economic downturns, including the 2008-2009 recession (Chart 2.3). As of the third quarter of 2021, Canada’s real GDP is only 1.4 per cent below its pre-pandemic level and is expected to reach its pre-pandemic level by the first quarter of 2022.

Chart 2.3
Real GDP Change During COVID-19 and Previous Recessions
Chart 2.3: Real GDP Change during COVID-19 and Previous Recessions

Note: Last data point, 2021Q4, is a forecast.

Sources: Statistics Canada; Department of Finance Canada November 2021 survey of private sector economists.

Text version
    November 2021 Survey Lower Range of Previous 3 Recessions Pre-pandemic level 2008 recession
2019Q4 0 100.0 100.0 0.0 100.0 100.0
2020Q1 1 97.8 98.8 0.7 100.0 98.8
2020Q2 2 87.0 96.6 2.3 100.0 96.6
2020Q3 3 94.9 95.6 2.4 100.0 95.6
2020Q4 4 96.9 96.0 0.6 100.0 96.0
2021Q1 5 98.1 95.5 1.6 100.0 97.1
2021Q2 6 97.3 94.6 3.6 100.0 98.3
2021Q3 7 98.6 96.2 2.6 100.0 98.8
2021Q4 8 99.8 97.4 2.1 100.0 99.5

Canada’s COVID-19 support measures have also been highly effective in mitigating financial distress among both Canadians and businesses, preventing an unnecessary increase in bankruptcies and business closures that many had feared at the beginning of the crisis. In fact, Canada now has more active businesses than before the pandemic and bankruptcies and insolvencies are below normal levels. By keeping Canadians’ and businesses’ finances largely intact, federal government supports laid the foundations for strong growth.

As the Canadian economy safely and carefully reopens, the recovery has been broadening—bringing along close-contact sectors like tourism, indoor dining, and air travel, which have shown clear signs of recovery (Chart 2.4). Encouragingly, strong growth in these close-contact sectors has brought them much closer to their pre-pandemic levels of activity compared to earlier in the year. This sets the stage for more sustained growth, though the recovery remains far from complete in certain sectors, particularly those that depend on tourism or large gatherings. The appearance of the Omicron variant underscores the fact that managing health risks remains key to a complete economic recovery.

Chart 2.4
Indicators for Selected Hard-hit Sectors of the Economy
Chart 2.4: Indicators for Selected Hard-hit Sectors of the Economy

Note: Last data points for restaurant spending, hotel occupancy and air travel are September 2021, October 2021 and November 2021, respectively. Air travel is the monthly average of daily number of flights for Canada’s 8 largest airports. For February, the average daily number of flights was calculated from February 17, 2020 to February 29, 2020.

Sources: Flight Radar; Hotel News Resource; Statistics Canada.

Text version
  Spending at restaurants (left) Hotel occupancy (left) Air travel (right)
Feb
2020
-0.3 -1.0 2083.6
Mar
2020
-35.8 -42.7 1483.3
Apr
2020
-61.3 -78.7 360.4
May
2020
-50.0 -72.8 340.2
Jun
2020
-36.5 -66.7 480.8
Jul
2020
-27.0 -57.6 621.6
Aug
2020
-22.4 -47.4 652.6
Sep
2020
-19.4 -47.8 645.4
Oct
2020
-26.0 -53.4 632.1
Nov
2020
-28.5 -55.0 609.9
Dec
2020
-34.7 -53.8 662.8
Jan
2021
-34.2 -56.6 579.1
Feb
2021
-28.5 -53.0 485.7
Mar
2021
-22.3 -46.8 482.0
Apr
2021
-29.2 -52.7 495.5
May
2021
-29.3 -58.6 501.0
Jun
2021
-15.6 -50.5 618.9
Jul
2021
-6.7 -27.6 848.5
Aug
2021
-2.1 -17.0 1084.0
Sep
2021
-2.2 -20.9 1207.9
Oct
2021
-24.4 1223.1
Nov
2021
    1236.3

Canada Exceeded its Goal of Creating One Million Jobs

At the height of lockdowns, 3 million Canadians lost their jobs and another 2.5 million Canadians were working significantly reduced hours—in total about 30 per cent of the pre-pandemic workforce. Initially, the labour market bounced back quickly, recouping 80 per cent of the jobs lost by November 2020. However, resurgent waves of the virus required public health restrictions in order to save lives, setting back the jobs recovery.

Since restrictions began being lifted in spring and summer 2021, the Canadian job market has seen a rapid recovery. Employment bounced back forcefully over the summer and fall, with 757,000 jobs having been created since June. By September, the government had achieved its commitment to create one million jobs, well ahead of initial expectations. By November, this number had grown to 1.3 million jobs. As well, the number of employed Canadians is now above its pre-pandemic level and the unemployment rate has reached its lowest level since the start of the pandemic, declining for six consecutive months.

Compared to other G7 economies, Canada has seen the second fastest jobs recovery. In fact, many peer countries are still well below their pre-pandemic employment levels (Chart 2.5). Innovative Canadian pandemic policies like the Canada Emergency Wage Subsidy were able to preserve the connection between employees and employers, contributing to the strong jobs recovery. As of November, 106 per cent of the jobs lost at the peak of the pandemic have been recouped in Canada, which is well ahead of the U.S. where only 83 per cent of jobs have been recouped (Chart 2.6). The pace of job gains has also outpaced previous recessions, in particular the 2008-09 recession, where more modest government support and a quick return to austerity policies prolonged the economic downturn and led to economic scarring. It took nearly eight months longer for employment to recover from the 2008-09 recession, even though there were only about one-tenth as many job losses.

Chart 2.5
Change in Employment Across G7 Countries Relative to February 2020
Chart 2.5: Change in Employment Across G7 Countries Relative to February 2020

Note: Latest data point is October or November 2021 with the exception of the U.K. (August 2021) and France (2021 Q3, which is compared to 2019 Q4).

Source: Haver Analytics.

Text version
  U.S. Japan U.K. Germany Italy Canada France
Change in Employment Across G7 Countries Relative to February 2020 -2.56486 -1.76479 -1.48128 -1.42113 -0.81129 0.971234 1.022147
Chart 2.6
Share of Employment Losses Recouped over the Pandemic
Chart 2.6: Share of Employment Losses Recouped over the Pandemic

Note: Last data point is November 2021.

Sources: Statistics Canada; U.S. Bureau of Labor Statistics.

Text version
Canada U.S.
Apr
2020
0.0 0.0
May
2020
10.1 12.7
Jun
2020
41.6 34.3
Jul
2020
55.6 42.1
Aug
2020
62.7 49.1
Sep
2020
75.2 52.3
Oct
2020
78.3 55.4
Nov
2020
80.2 56.6
Dec
2020
78.4 55.2
Jan
2021
71.3 56.2
Feb
2021
80.0 58.6
Mar
2021
90.1 62.1
Apr
2021
83.2 63.3
May
2021
80.9 66.1
Jun
2021
88.6 70.4
Jul
2021
91.8 75.3
Aug
2021
94.8 77.4
Sep
2021
100.0 79.1
Oct
2021
101.1 81.6
Nov
2021
106.2 82.5

Conditions Are Improving for Vulnerable Workers

At the height of the pandemic, job losses were highest amongst those who, in many cases, could least afford it — low-income workers, racialized Canadians, new Canadians, and women. These vulnerable groups faced some of the steepest job losses, in large part due to their higher representation in hard-hit, close-contact sectors.

High vaccination rates have enabled the safe restart of close-contact businesses. This has led to sustained job creation and improved job prospects for Canada’s more vulnerable workers—particularly women, lower-wage workers, young people, and racialized workers (Charts 2.7 and 2.8). Furthermore, the reopening of schools and child care centres has helped parents, primarily mothers, return to the workforce more fully. These conditions have increased Canadians’ confidence in their labour market prospects. In fact, the share of Canadians aged 15 to 64 attached to the job market has reached a record high, including for women, in contrast with the U.S. where labour force participation for this group remains below its pre-pandemic level.

Chart 2.7
Employment Change by Wage Level Since February 2020
Chart 2.7: Employment Change by Wage Level Since February 2020

Note: Last data point is November 2021.

Sources: Statistics Canada; Department of Finance Canada calculations.

Text version
  Lower-wage occupations Middle-wage occupations Higher-wage occupations
Feb2020 100.0 100.0 100.0
Mar2020 87.9 97.1 99.1
Apr2020 73.8 83.6 95.9
May2020 74.9 86.8 96.2
Jun2020 83.4 92.1 97.0
Jul2020 87.2 93.5 98.5
Aug2020 88.3 95.6 98.4
Sep2020 90.2 96.8 101.3
Oct2020 90.8 97.9 101.0
Nov2020 90.4 98.7 101.5
Dec2020 89.4 98.9 101.4
Jan2021 86.1 97.6 102.6
Feb2021 90.0 98.5 101.9
Mar2021 91.9 99.5 103.9
Apr2021 91.4 98.2 102.5
May2021 91.8 98.2 100.9
Jun2021 94.5 99.1 101.0
Jul2021 94.0 98.8 103.3
Aug2021 94.8 98.2 104.7
Sep2021 95.1 99.5 105.5
Oct2021 94.4 100.4 105.7
Nov2021 94.3 101.1 107.6
Chart 2.8
Workers Affected by COVID-19 by Age and Sex
Chart 2.8: Workers Affected by COVID-19 by Age and Sex

Note: Affected means laid off or working less than half of their usual hours (including no hours) for reasons likely related to COVID-19.

Source: Statistics Canada.

Text version
  Both sexes Men Women  15-24 years  25-54 years  55+ years
 May 2021 -6.2 -5.2 -7.3 -13.7 -4.6 -6.2
November 2021 0.2 0.0 0.3 -1.4 1.1 -1.5
Ongoing Labour Market Recovery

As announced in the Fall Economic Statement 2020 and reaffirmed in Budget 2021, the government tracks a range of economic indicators to assess the strength of the recovery and the impact of fiscal policy support. These indicators include key measures of labour market conditions like the employment rate, total hours worked, and the unemployment rate. Progress is tracked at both the headline level and through a disaggregated view of how diverse groups of Canadians are faring in the labour market.

Canada’s economy has made significant progress since Budget 2021. However, Canada still has ground to make up to reach the strong and inclusive conditions seen before the pandemic (Charts 2.9 to 2.12). The number of Canadians who have been unemployed for more than six months remains elevated. Prolonged spells of unemployment can lead to individuals withdrawing from the workforce entirely as their skills erode, which can have lasting impacts on earnings potential.

Chart 2.9
Employment Rate
Chart 2.9: Employment Rate
Text version
Age-adjusted employment rate (15+) Employment rate (15+)
Feb2020 100 100
Mar2020 94.74204 94.66019417
Apr2020 84.32408 84.30420712
May2020 85.90099 85.7605178
Jun2020 90.78733 90.61488673
Jul2020 92.9348 92.7184466
Aug2020 94.02845 93.85113269
Sep2020 95.93763 95.63106796
Oct2020 96.40316 96.11650485
Nov2020 96.65784 96.27831715
Dec2020 96.37774 95.95469256
Jan2021 95.27299 94.82200647
Feb2021 96.59097 96.11650485
Mar2021 98.15155 97.57281553
Apr2021 97.04425 96.44012945
May2021 96.67798 96.11650485
Jun2021 97.88459 97.24919094
Jul2021 98.31409 97.57281553
Aug2021 98.69983 97.89644013
Sep2021 99.4425 98.54368932
Oct2021 99.51043 98.70550162
Nov2021 100.2149 99.35275081
Chart 2.10
Unemployment
Chart 2.10: Unemployment
Text version
Unemployment rate (right) Excess unemployment since Feb 2020 (left)
Feb2020 100.0 0.0
Mar2020 138.6 0.4
Apr2020 229.8 1.3
May2020 240.4 1.5
Jun2020 219.3 1.3
Jul2020 191.2 1.0
Aug2020 178.9 0.9
Sep2020 161.4 0.7
Oct2020 157.9 0.7
Nov2020 150.9 0.6
Dec2020 154.4 0.6
Jan2021 164.9 0.8
Feb2021 143.9 0.5
Mar2021 131.6 0.4
Apr2021 142.1 0.5
May2021 143.9 0.5
Jun2021 136.8 0.4
Jul2021 131.6 0.4
Aug2021 124.6 0.3
Sep2021 121.1 0.3
Oct2021 117.5 0.2
Nov2021 105.3 0.1
Chart 2.11
Total Hours Worked
Chart 2.11: Total Hours Worked
Text version
Total Hours Worked
Feb2020 100.0
Mar2020 85.1
Apr2020 72.4
May2020 76.9
Jun2020 84.5
Jul2020 88.9
Aug2020 91.4
Sep2020 93.0
Oct2020 93.8
Nov2020 95.0
Dec2020 94.7
Jan2021 95.5
Feb2021 96.8
Mar2021 98.8
Apr2021 96.1
May2021 96.2
Jun2021 96.0
Jul2021 97.3
Aug2021 97.4
Sep2021 98.5
Oct2021 99.4
Nov2021 100.1
Chart 2.12
Progress on Key Labour Market Metrics
Chart 2.12: Progress on Key Labour Market Metrics
Text version
Current Level Remaining shortfall from 2019 average
Long-term unemployment rate 59% 41%
Low-wage employment 78% 22%
Unemployment rate, women 88% 12%
Unemployment rate, 15-24 95% 5%
Employment rate 96% 4%
Unemployment rate 97% 3%
Participation rate, 15-64 114% 0%

Note: In Chart 2.9, the age-adjusted employment rate holds fixed the age structure of the population at February 2020 to account for the population aging and lower participation rates among older cohorts. Chart 2.12 illustrates the extent to which labour market conditions have recovered. The recovery is shown through progress bars, where the current value of each measure is compared with both its trough during the pandemic and a pre-pandemic benchmark value (2019 average). Long-term unemployed are those who have been unemployed for 27 weeks or more. Low-wage employment is relative to its February 2020 level. Last data point is November 2021.

Sources: Statistics Canada; Department of Finance Canada calculations.

Labour Market Recovery is Progressing

Despite encouraging improvements, conditions have not yet returned to normal. Economic activity and employment remain below pre-pandemic levels in many close-contact and tourism-dependent sectors, necessitating ongoing support (Chart 2.13). Achieving a full recovery will take some time. About 155,000 Canadians are still working sharply reduced hours as a result of the pandemic and long-term unemployment remains elevated. And while vulnerable groups who suffered the largest job losses have mostly recovered from the crisis, unemployment rates for some groups remain elevated (Chart 2.14).

Chart 2.13
Change in Employment by Key Sector Since February 2020
Chart 2.13: Change in Employment by Key Sector Since February 2020

Note: Last data point November 2021.

Sources: Statistics Canada; Department of Finance Canada calculations.

Text version
Hard-hit services Goods-producing sectors Other services
Nov2021 -0.2602 -0.1075 0.5537
Chart 2.14
Change in Unemployment Rate Since November 2019, by Selected Groups
Chart 2.14: Change in Unemployment Rate Since November 2019, by Selected Groups

Note: Last data point November 2021.

Source: Statistics Canada.

Text version
Aged 55+ Racialized Canadians Single mothers All Canadians Non-student youth High school or less Off-reserve Indigenous
Nov-2021 1.6 0.7 0.5 0.2 0.2 0.2 -0.1

Ongoing Recovery Accompanied by Strong Demand for Workers

The resurgence in economic activity is also creating challenges for Canadian businesses in certain parts of the country that need to hire more workers to meet increasing demand. Employers were actively recruiting for more than one million job vacancies at the start of September and demand for labour has remained strong through November (Chart 2.15), with online job postings in Canada at least 50 per cent above the level in February 2020.

To some extent, this challenge reflects the difficulty in matching a large number of available workers to a large number of job openings all at once as some sectors, like accommodation and food, reopened very rapidly (Chart 2.16). These pressures are expected to be temporary as some labour market frictions—such as the time it takes for businesses to staff up to regular levels—gradually subside. But some shortages may be more persistent as a proportion of workers have switched occupations. As well, some sectors were experiencing shortages prior to the pandemic that may take longer to resolve as businesses struggle to find enough workers with the required set of skills. Canada’s commitment to increase immigration levels and reduce backlogs should help alleviate pressure. The government has also committed to come forward with a further strategy to address labour shortages and will do so next year.

Chart 2.15
Online Job Postings in G7 Economies
Chart 2.15: Online Job Postings in G7 Economies

Note: Data are smoothed using a 7-day moving average. Last data point is November 19, 2021.

Source: Indeed.

Text version

This chart shows a 7-day moving average of daily job postings for the G7 countries, tracked by Indeed. The data is indexed to February 1, 2020. The chart illustrates that Canada, along with other G7 countries, has witnessed a significant rise in job postings over 2021.

Chart 2.16
Job Vacancy Rates by Industry
Chart 2.16: Job Vacancy Rates by Industry

Note: The job vacancy rate is defined as vacancies expressed as a percentage of employment plus vacancies. Last data point is September 2021.

Source: Statistics Canada.

Text version
September 2021 2015-2019 average
All Industries 5.9 2.9
Natural resources
(excluding oil & gas)
6.6 5.3
Other services 6.8 3.5
Construction 6.9 3.0
Accomodation and food 13.6 4.5

Canada is Managing Labour Market Demands Better Than Most

Peer countries are experiencing similar labour supply pressures, especially the United States where the pressure is more acute. Canada’s labour shortage is less severe due, in part, to our stronger rebound in labour force participation (Chart 2.17), and programs like the Canada Emergency Wage Subsidy which preserved the connection between employers and employees. Further, immigration is picking up with average monthly flows in 2021 quickly catching up to pre-pandemic levels, which is expected to help to ease labour shortages (Chart 2.18). Canada was one of the few advanced economies to increase immigration targets early in the pandemic to make up for the 2020 shortfall, recognizing early that immigration has an important role to play in building a strong labour force and supporting economic growth. During the pandemic, the government made historic investments to establish a Canada-wide early learning and child care system that will help ease labour market pressures as affordable child care will support parents, especially mothers, to fully participate in the labour force.

Chart 2.17
Labour Force Participation Rate, Canada and the United States
Chart 2.17: Labour Force Participation Rate, Canada and the United States

Note: Data are provided for individuals aged 25 to 54. Canadian figures are adjusted to U.S. concepts.

Sources: Statistics Canada; U.S. Bureau of Labor Statistics.

Text version
Canada United States
Feb
2020
100 100
Mar
2020
98.49711 99.51749095
Apr
2020
92.94798 96.26055489
May
2020
94.79769 97.22557298
Jun
2020
98.15029 98.31121834
Jul
2020
98.49711 98.06996381
Aug
2020
99.19075 98.19059107
Sep
2020
100 97.58745476
Oct
2020
100.3468 98.06996381
Nov
2020
100 97.58745476
Dec
2020
99.88439 97.70808203
Jan
2021
99.53757 97.82870929
Feb
2021
99.65318 97.82870929
Mar
2021
100.2312 98.06996381
Apr
2021
100 98.06996381
May
2021
99.88439 98.06996381
Jun
2021
99.76879 98.55247286
Jul
2021
100 98.67310012
Aug
2021
99.88439 98.67310012
Sep
2021
100.6936 98.4318456
Oct
2021
100.578 98.55247286
Nov
2021
100.8092 98.67310012
Chart 2.18
Cumulative Permanent Residents Admissions, Canada
Chart 2.18: Cumulative Permanent Residents Admissions, Canada

Note: Last data point: September 2021

Source: Immigration, Refugees and Citizenship Canada.

Text version
  2019 2020 2021 target
Jan 19 25 25 33
Feb 39 51 48 67
Mar 66 69 70 100
Apr 93 73 92 134
May 126 84 109 167
Jun 160 103 145 201
Jul 197 117 185 234
Aug 228 128 222 267
Sept 264 143 267 301
Oct 295 158   334

2.2 Challenges Ahead: Global Inflation, Supply Chain Disruptions, COVID-19 Variants, and Other Uncertainties

From the outset of the COVID-19 recession, economists have predicted that even a strong recovery would encounter challenges along the way. This is true in Canada, and around the world, as variants of concern require renewed public health cautions and as economies tackle the intricacies of safely reopening. The unprecedented shutdown and restart of the global economic engine has brought with it several challenges including surges in demand for goods rather than services, supply chain challenges, and higher global inflation—which Canadians are feeling here at home. Fighting to end the pandemic continues to be the best economic policy for achieving a strong and stable recovery.

Elevated Inflation is a Global Phenomenon

The pandemic and related global inflation is having a tangible impact on Canadians’ cost of living as the price of goods has gone up. As global economies have unwound COVID-19-related restrictions and recovery has begun, the price of goods has gone up in economies around the world (Charts 2.19 and 2.20). During the pandemic, people redirected the money they usually spent on in-person services towards physical goods. This sudden and strong shift in demand has put an extraordinary strain on global supply chains, leading to shortages and bottlenecks. This disruption has been a significant driver of rising inflation, in particular for goods, around the globe.

Chart 2.19
Consumer Price Inflation in Advanced and Emerging Economies
Chart 2.19: Consumer Price Inflation in Advanced and Emerging Economies

Note: Last data point is October 2021.

Source: Organisation for Economic Co-operation and Development.

Text version
Advanced economies Emerging-market economies
Jan
2019
1.4 3.0
Feb
2019
1.5 2.8
Mar
2019
1.8 3.0
Apr
2019
2.0 3.1
May
2019
1.8 3.3
Jun
2019
1.7 3.3
Jul
2019
1.7 3.3
Aug
2019
1.5 3.4
Sep
2019
1.3 3.2
Oct
2019
1.1 3.4
Nov
2019
1.2 3.4
Dec
2019
1.5 3.4
Jan
2020
1.7 3.5
Feb
2020
1.6 3.8
Mar
2020
0.9 3.5
Apr
2020
0.2 3.0
May
2020
0.1 2.6
Jun
2020
0.6 2.3
Jul
2020
0.5 2.8
Aug
2020
0.5 2.7
Sep
2020
0.5 3.1
Oct
2020
0.3 3.6
Nov
2020
0.4 3.3
Dec
2020
0.4 3.1
Jan
2021
0.6 3.3
Feb
2021
0.6 3.3
Mar
2021
1.3 3.9
Apr
2021
1.9 4.4
May
2021
2.2 5.4
Jun
2021
2.3 5.5
Jul
2021
2.3 4.6
Aug
2021
2.8 4.9
Sep
2021
2.9 4.8
Oct
2021
3.7 4.8
Chart 2.20
Intergenerational Impacts – Value of Direct Measures of the COVID-19 Economic Response Plan by Age Group of Recipients
Chart 2.20: Intergenerational Impacts – Value of DirectMeasures of the COVID-19 Economic Response Plan by Age Group of Recipients

Note: Last data point is November 2021 for U.S and Germany and October 2021 for others.

Source: Haver Analytics; Organisation for Economic Co-operation and Development.

Text version

This chart shows that inflation has increased notably over 2021 in many advanced economies, such as the United States, Canada, the United Kingdom and the Euro Area.

The widespread reopening of economies has also seen the normalization of prices, or “reflation,” for services that had deflated prices during the height of the pandemic, such as air transportation, personal care, and restaurant food, pushing their prices up from 2020 lows. Price pressures have also developed due to a number of special factors influencing supplies of some goods, such as cuts to production early in the pandemic, and shipping bottlenecks. Meanwhile, climate change impacts such as widespread droughts have hurt some crops, pushing food prices higher. These factors have combined to cause the cost of living to rise in Canada and abroad in recent months.

Through to early this fall, these pressures largely offset the decline in prices that occurred earlier in the pandemic. The combined effect is inflation that is modestly above the 2 per cent target when averaged over the last two years (Chart 2.21). Going forward it is likely that price pressures will exceed this threshold for a period of time in most advanced economies, including Canada, before returning to more normal levels.

In October, inflation in Canada increased to 4.7 per cent year over year (Chart 2.22). The elevated level of inflation primarily reflects pressures on prices of goods owing much to strong demand combined with supply shortages, with prices for services playing a much smaller role. Private sector forecasters expect inflation to moderate to a level around the Bank of Canada’s 2 per cent inflation target by the end of 2022. There is, however, a considerable amount of uncertainty over the timing of when shipping bottlenecks and various shortages will dissipate and the economic consequences of variants like Omicron.

Chart 2.21
Consumer Price Inflation in Selected Advanced Economies over a Two-Year Period
Chart 2.21: Consumer Price Inflation in Selected Advanced Economies over a Two-Year Period

Note: Last data point is November 2021 for U.S and October 2021 for others.

Source: Haver Analytics.

Text version

This chart illustrates Canada's two-year, annualized rate of inflation amongst selected advanced economies. It shows that, while inflation has accelerated over 2021, it remains close to two per cent.

Chart 2.22
Contributions to Consumer Price Inflation in Canada
Chart 2.22: Contributions to Consumer Price Inflation in Canada

Note: Last data point is October 2021.

Sources: Statistics Canada; Department of Finance Canada calculations.

Text version

This chart illustrates the contribution of key drivers to consumer price inflation in Canada. Higher inflation is driven by higher prices of energy and food and to a lesser extent recently by the reopening of the economy, as some prices return to more normal levels in the service sector.

In addition to rising inflationary pressures, strong housing demand throughout the pandemic combined with limited supply has led to significantly higher house prices across the country. Some normalization of housing activity is expected as the pandemic subsides. This, in combination with increases in new housing supply, will help to slow house price growth in much of the country. However, it will take years of strong supply growth to address the acute affordability challenges Canadians are facing in some regions of the country. The federal government is working with all orders of government to unlock and create more supply. The government has invested over $70 billion through the National Housing Strategy that will support the construction of up to 125,000 affordable homes and increase Canada’s housing supply. Addressing the issues of housing affordability is a priority for the government.

Global inflation has put a strain on the middle class and those working hard to join it. The government is committed to helping Canadians with the cost of living. Structural investments in early learning and child care will deliver significant savings to Canadian families starting next month. Investments through the National Housing Strategy are helping increase housing supply and help vulnerable Canadians find a place to call home, though more action is necessary to address affordability challenges. Furthermore, indexation of key income supports to inflation also ensures seniors, families with children, and low-income Canadians can afford the cost of living. The government has also delivered a number of one-time income supports to vulnerable Canadians during the pandemic.

The government and the Bank of Canada recently announced the central bank’s mandate for the next five-years, including renewing the 2 per cent inflation target. This will ensure that the Bank of Canada remains vigilant against the risk that current inflationary pressures become entrenched. Since the Bank of Canada adopted the inflation-targeting framework 30 years ago, inflation has averaged close to 2 per cent, despite periods of both upward and downward pressures on inflation. The renewed commitment to the inflation target will help ensure that prices normalize over the medium term and that life remains affordable for the middle class and those working hard to join it.

Global Supply Chain Issues Contributing to Price Increases

Getting products to markets, especially from Asia, has become more difficult given the larger volumes and disruptions to supply chain infrastructure, such as port closures and COVID-19 related production shutdowns. Containers have piled up at ports, notably on the U.S. West Coast, as significantly higher maritime cargo volumes have met onshore transport bottlenecks and labour shortages. These supply and demand imbalances have translated into surging costs for shipping, notably out of China (Chart 2.23), which, in turn, increase prices.

To help address these issues, in 2021-22, the government will launch a new, targeted call for proposals under the National Trade Corridors Fund to relieve supply chain congestion including help for Canadian ports to increase cargo storage capacity.

In addition to shipping bottlenecks, there are ongoing shortages of many products, particularly semiconductors, which are key in the production of a wide range of goods that were in stronger demand during the pandemic. While countries and factories have ramped up production to deal with order backlogs, supply is lacking, causing disruptions for many industries, particularly automakers. This has caused rapid increases in car prices in many countries. Encouragingly, after rising since the beginning of the pandemic, transportation costs have declined from their peak, which suggests supply bottlenecks might have peaked.

There has been a corresponding surge in commodity prices (Chart 2.24). Crude oil benchmarks have more than doubled since the beginning of summer 2020. Similarly, natural gas and coal prices have surged ahead of winter in the northern hemisphere, reflecting depleted inventories in Europe and parts of Asia. This has translated into higher electricity prices in some areas of the world. Prices of certain base metals have also risen strongly.

Climate change is also having an impact on price increases. Some food prices are rising in part because of severe droughts in key regions of the global food supply chain, including in Alberta, Manitoba, and Saskatchewan. The catastrophic floods in British Columbia have also exacerbated supply chain issues and congestion at the Port of Vancouver.

Chart 2.23
Freightos Baltic Index: Global Shipping Costs
Chart 2.23: Freightos Baltic Index: Global Shipping Costs

Note: Last data point is week ending December 5 for “China to U.S. West Coast” and week ending December 10 for Baltic Dry Index.

Sources: Freightos, Bloomberg; Department of Finance Canada calculations.

Text version

This chart illustrates that the cost for shipping reached record highs over the summer of 2021 and has gradually decreased recently but remains elevated compare to pre-pandemic levels.

Chart 2.24
Change in Key Commodity Prices since February 2020
Chart 2.24: Change in Key Commodity Prices since February 2020

Note: CEP, or Canadian effective price, is the export-weighted composite of Canadian Light Sweet, Western Canada Select (the benchmarks for Western Canadian light and heavy crude oil, respectively) and Brent (the benchmark for Newfoundland and Labrador light crude oil). Last data point is week ending November 26, 2021.

Sources: Haver Analytics; Department of Finance Canada calculations.

Text version

The chart shows that the percentage change in commodity prices since the end of February 2020, just prior to the lockdowns at the onset of the COVID-19 global pandemic, has been significant. Overall, the Finance Canada Commodity Price Index is 62.3 per cent higher, while, as of the week ending November 26, 2021, prices for Canadian crude oil, natural gas, base metals, agricultural products and lumber are up 65.9 per cent, 177.9 per cent, 53.1 per cent, 67.4 per cent and 43.9 per cent, respectively.

Extreme Weather in British Columbia

Recent floods in British Columbia have demonstrated the serious risk climate change poses to Canadians’ lives and livelihoods. Flooding, mudslides, landslides, and rockslides have taken the lives of Canadians and forced the closure of major highways, railways, and pipelines. This disruption to critical transportation links severed the flow of people and goods, putting additional pressure on supply chains in the province and nationwide.
Significant disruptions to trade flows—most notably through the Port of Vancouver—are expected to have a significant economic impact. Locally, they have resulted in shortages and higher prices for certain goods such as gas. Nationally, they have exacerbated supply chain issues across the country. The floods have also severely damaged, and even destroyed, farms, agricultural lands, agricultural products, and livestock in the region.
The impacts of this extreme weather are expected to weigh on Canada’s recovery in the fourth quarter of 2021 and could lead to a further increase in prices, particularly in British Columbia. While some trade links have fully reopened, others remain closed or at partial capacity, and permanent repairs could take several months in some cases. Some delays and detours are likely to persist well into 2022. The total economic cost of the floods will depend on how quickly trade links reopen, which supply chains can adapt, and whether the flow of goods can be rerouted.
The Government of Canada and the Province of British Columbia, along with Indigenous partners, will continue to work together to support British Columbians through this crisis and as they rebuild. As noted in Chapter 3, the government has provisioned for $5 billion in 2021-22 for its share of recovery costs under the Disaster Financial Assistance Arrangements as well as other costs related to the recent natural disasters in British Columbia.

To protect Canadians against the risks of climate change, the government is working to finalize Canada’s first National Adaptation Strategy by the end of 2022.

Many expect global supply disruptions to largely be resolved later in 2022. However, a considerable degree of uncertainty surrounds this outlook, especially with the emergence of the Omicron variant, which could lead to further supply challenges and bottlenecks. As well, other supply shocks, such as those related to widespread and severe droughts in several key regions of the global food supply chain, are expected to further increase food prices. In Canada alone, adverse weather conditions in the Prairie provinces are expected to lead to a sharp decline in total grain and pulse production in 2021.

Federal Investments to Help Canadians Afford the Cost of Living

The government is focused on supporting families, growing the middle class, and improving Canadians’ standard of living, and making significant investments to help Canadians afford the cost of living. This includes sizeable structural investments in early learning and child care and housing.

Early Learning and Child Care Investments to Make Life More Affordable

In Budget 2021, the government laid out a plan to provide Canadian parents with, on average, $10-a-day regulated child care spaces for children under six years old. This plan to build a Canada-wide, community-based early learning and child care system will make life more affordable for families, create new jobs, get parents—especially women—back into the workforce, grow the middle class, and give every child an equal start in life. It will also drive economic growth in Canada and is estimated to raise real GDP by as much as 1.2 per cent over the next two decades.

Table 2.1
Canada-Wide Early Learning and Child Care Agreements

Province/Territory and Date Agreement Announced
Amount of Federal Investment
(5 Year Allocation, $ millions)1
Estimated Average Savings per Child
with 50% Average
Fee Reduction
(gross, annual)2
Estimated Average
Savings per
Child at $10/day
(gross, annual)2
Child Care
Spaces to be Created
Estimated Early Childhood Educator Jobs to be Created3
BC
July 8, 2021
$3,212 $6,000
(by end of 2022)
$9,390
(by end of FY 2025-26)
40,0004 8,000 to 10,000
NS
July 13, 2021
$605 $4,690
(by end of 2022)
$6,780
(by end of FY 2025-26)
9,500 1,900 to 2,375
YK
July 23, 2021
$42 Yukon committed
to a $10/day average fee prior to Budget 2021
$7,300
(achieved)
110 22 to 28
PEI
July 27, 2021
$118 $3,390
(by end of 2022)
$4,170
(by end of 2024)
452 90 to 113
NL
July 28, 2021
$306 $5,090
(by end of 2022)
$7,560
(as early as January 2023)
5,895 1,179 to 1,474
QC5
August 5, 2021
$5,964 Not applicable Not applicable 37,000 7,400 to 9,250
MB
August 9, 2021
$1,201 $2,610
(by end of 2022)
$2,610
(by end of FY 2022-23)
23,000 4,600 to 5,750
SK
August 13, 2021
$1,099 $3,910 (retroactive
to July 2021)
$5,220
(by end of FY 2025-26)
28,000 5,600 to 7,000
AB
November 15, 2021
$3,797 $5,610
(January 2022)
$8,610
(by end of FY 2025-26)
42,500 8,500 to 10,625
Outstanding Agreements as of December 11, 20216
NWT $51 $4,950 $7,300  
NU $66 $4,950 $7,300  
ON $10,235 $5,960 $9,320  
NB $492 $3,910 $5,220  

1 National Canada-wide early learning and childhood allocations are calculated based on projected 0-12 child population and include base funding of $2 million per province/territory per year.
2 Employment and Social Development Canada estimates. Savings estimates are relative to 2019 levels, are based on out-of-pocket parent fees and do not include amounts that would be recovered through provincial/territorial tax credits or the federal child care expense deduction at tax time, or changes to provincial/territorial or federal benefits as a result of lower child care expenses. Actual savings for families will vary based on factors such as actual fees paid prior to reductions.
3  Employment and Social Development Canada estimates. Range of estimated early childhood educator jobs created is based on the average number of early childhood educators expected to be required per new child care space.
4 B.C. committed to creating 30,000 new spaces within five years, and 40,000 new spaces within seven years.
5 The Government of Canada has entered into an asymmetrical agreement with the province of Quebec that will allow for further improvements to its early learning and child care system, where parents with a subsidized, reduced contribution space already pay a single fee of less than $10 per day.

6 Employment and Social Development Canada estimates of federal investments and potential savings, should agreements be signed on equivalent terms to agreements signed to date. Child care spaces to be created (and in turn, early childhood educator jobs to be created) are subject to negotiations. 

The government has also introduced a number of measures which complement existing protection provided to seniors, families with children, and low-income individuals through indexation to inflation of Old Age Security (OAS), Guaranteed Income Supplement (GIS), Canada Child Benefit, Goods and Services Tax (GST) Credit and other benefits:

The government is also taking action to reduce cell phone bills. Data from November 2021 shows that prices for most mid-range plans (2GB-6GB) have gone down between 10 per cent and 33 per cent compared to early 2020 and that these prices are trending downwards.

2.3 The Medium-Term Outlook Remains Encouraging

Economists Expect Solid Growth in Economic Activity

The Department of Finance Canada surveyed a group of private sector economists in early November 2021. The survey results have been adjusted to incorporate the actual results of the National Accounts for the third quarter of 2021 and the historical revisions released on November 30th, 2021. To supplement this, and in light of the uncertain global economic situation associated with ongoing supply chain issues and risks associated with new variants of concern, the Department of Finance has provided two alternative scenarios that account for the ongoing uncertainty facing the economy and analyze faster or slower growth tracks.

Overall, private sector economists expect solid real GDP growth of 4.6 per cent in 2021, down from the gain of 5.8 per cent expected in Budget 2021. Since Budget 2021, supply chain issues have broadened and intensified throughout the economy, while activity in the housing market moderated following a surge in activity in the first quarter of the year. Together, these two factors led to the first decline in real GDP since the onset of the pandemic in the second quarter of 2021 (Chart 2.25). While GDP and job growth are picking up, led by a healthy rebound in hard-hit services and sustained foreign demand for Canadian commodities, ongoing challenges in supply chains and the housing market continue to weigh on the recovery, leading to slower real GDP growth in the second half of 2021 than expected in Budget 2021.


Chart 2.25
Real GDP Growth Projections
Chart 2.25: Real GDP Growth Projections

Sources: Statistics Canada; for Budget 2021, Department of Finance Canada March 2021 survey of private sector economists; for Economic and Fiscal Update 2021, Department of Finance Canada November 2021 survey of private sector economists, which has been adjusted to incorporate the actual results of the National Accounts for the third quarter of 2021 and the historical revisions released on November 30th.

Text version
Budget 2021 (March 2021 survey) November 2021 survey
2021Q2 4.4 -3.2
2021Q3 6.3 5.4
2021Q4 5.0 5.1
2022Q1 4.0 4.8
2022Q2 2.9 4.9
     
2021 5.8 4.6
2022 4.0 4.2
2023 2.1 2.8

Growth Projections Broadly in Line with Budget 2021

Despite the factors delaying recovery, real GDP is expected to reach its pre-pandemic level by the first quarter of 2022. Real GDP growth should then remain solid at 4.2 per cent in 2022 and 2.8 per cent in 2023, stronger than expected in Budget 2021. As a result, the economy is set to reach a similar level of output by the end of 2022 as expected in Budget 2021 (Chart 2.26). Based on a similar economic outlook, OECD projections suggest the recovery in Canada would be the second fastest (relative to pre-pandemic level of GDP) in the G7 by 2023 (Chart 2.27).

Chart 2.26
Household Deposits during the Pandemic
Chart 2.26: Household Deposits during the Pandemic

Sources: Statistics Canada; Department of Finance Canada September 2020, March 2021 and November 2021 surveys of private sector economists; Department of Finance Canada calculations.

Text version
  Latest Actual FES 2020 (September 2020 Survey) Budget 2021 (March 2021 Survey) November 2021 survey
2020Q2 87.0 87.0    
2020Q3 94.9 95.1    
2020Q4 96.9 96.3 96.9  
2021Q1 98.1 97.4 97.8  
2021Q2 97.3 98.2 98.9  
2021Q3 98.6 99.1 100.4 98.6
2021Q4   100.1 101.6 99.8
2022Q1   100.9 102.6 101.0
2022Q2   101.6 103.3 102.2
2022Q3   102.3 103.9 103.3
2022Q4   102.8 104.5 104.0
2023Q1   103.4 104.9 104.7
2023Q2   104.0 105.5 105.2
2023Q3   104.5 106.0 105.7
2023Q4   105.1 106.5 106.3
2024Q1   105.6 107.0 106.8
2024Q2   106.2 107.5 107.3
2024Q3   106.7 108.0 107.8
2024Q4   107.2 108.5 108.3
Chart 2.27
Projected Change in Real GDP by 2022Q4
Chart 2.27: Projected Change in Real GDP by 2022Q4

Source: Organisation for Economic Co-operation and Development.

Text version
  U.K. Japan Italy Germany France Canada U.S.
2022Q4 1.859836 2.3508973 2.50364 2.797757 3.455766 3.7 5.9

At the same time, the strength in commodity prices led to significantly higher GDP inflation (a measure of price changes for all of the goods and services produced in the economy) in the first half of 2021 than expected at the time of Budget 2021. At 7.6 per cent, the outlook for GDP inflation in 2021 is now double the Budget 2021 projection. As a result, the projected level of nominal GDP (the broadest measure of the tax base) in the November survey is up by an average of about $87 billion per year over the forecast horizon compared to Budget 2021 projections (Chart 2.28) (see Annex 1 for full details of the updated outlook).

Chart 2.28
Nominal GDP Projections
Chart 2.28: Nominal GDP Projections

Sources: Statistics Canada; for Budget 2021, Department of Finance Canada March 2021 survey of private sector economists; for Economic and Fiscal Update 2021, Department of Finance Canada November 2021 survey of private sector economists, which has been adjusted to incorporate the actual results of the National Accounts for the third quarter of 2021 and the historical revisions released on November 30th.

Text version
  Latest Actual FES 2020 (September 2020 Survey) Budget 2021 (March 2021 Survey) November 2021 survey
2020Q2 85.5 85.5    
2020Q3 95.2 94.6    
2020Q4 98.6 96.3 98.6  
2021Q1 102.9 97.9 100.2  
2021Q2 104.5 99.1 101.8  
2021Q3 106.7 100.7 104.0 106.7
2021Q4   102.1 105.8 108.8
2022Q1   103.5 107.3 110.4
2022Q2   104.7 108.5 112.0
2022Q3   105.9 109.8 113.5
2022Q4   107.0 110.9 114.8
2023Q1   108.1 111.9 115.9
2023Q2   109.3 113.0 117.0
2023Q3   110.5 114.1 118.0
2023Q4   111.6 115.2 119.2
2024Q1   112.8 116.4 120.4
2024Q2   114.0 117.5 121.5
2024Q3   115.1 118.6 122.7
2024Q4   116.3 119.8 123.8
    117.4 120.9 124.9
    118.6 122.0 126.1
    119.7 123.2 127.3
    120.8 124.3 128.5

Canada’s Recovery Is Outpacing Rebound from Previous Recessions
The resilience of the Canadian economy, bolstered by unprecedented fiscal policy support and high vaccination rates, suggests that the lasting effects of the pandemic on Canada’s productive capacity may not be as severe as previously thought. The Canadian economy is expected to experience the fastest recovery of the last three recessions (Chart 2.29). Less scarring means a larger economy in the medium term with lower unemployment and higher wages.

Chart 2.29
Real GDP Projections Compared to the Pre-Pandemic Outlook and the Experience during Previous Recessions
Chart 2.29: Real GDP Projections Compared to the Pre-Pandemic Outlook and the Experience during Previous Recessions

Note: ‘Pre-pandemic track’ refers to the projection in the December 2019 survey of private sector economists.

Sources: Statistics Canada; Department of Finance Canada November 2021 survey of private sector economists; Department of Finance Canada calculations.

Text version
    Actual November 2021 Survey Lower Range of Previous 3 Recessions Pre-Pandemic Level Pre-Pandemic Track
(December 2019 Survey)
2019Q4 0 100.0   100.0 0.0 100.0 100.0
2020Q1 1 97.8   98.8 0.7 100.0 100.4
2020Q2 2 87.0   96.6 2.3 100.0 100.8
2020Q3 3 94.9   95.6 2.4 100.0 101.3
2020Q4 4 96.9   96.0 0.6 100.0 101.7
2021Q1 5 98.1   95.5 1.6 100.0 102.1
2021Q2 6 97.3   94.6 3.6 100.0 102.6
2021Q3 7 98.6 98.6 96.2 2.6 100.0 103.1
2021Q4 8   99.8 97.4 2.1 100.0 103.5
2022Q1 9   101.0 97.6 3.0 100.0 104.0
2022Q2 10   102.2 98.1 3.3 100.0 104.4
2022Q3 11   103.3 98.6 3.6 100.0 104.9
2022Q4 12   104.0 99.3 4.9 100.0 105.4

The outlook for the labour market is strong and monthly job gains should continue at an above-normal pace as the remaining slack diminishes (Chart 2.30). With November’s strong job numbers, the labour market recovery is well ahead of expectations. The unemployment rate has dropped to 6.0 per cent, at least six months earlier than expected in the recently completed private sector survey (Chart 2.31).

Chart 2.30
Employment Projections
Chart 2.30: Employment Projections

Sources: Statistics Canada; Department of Finance Canada November 2021 survey of private sector economists; Department of Finance Canada calculations.

Text version
  Latest Actual November 2021 Survey 2008 Recession
2020Q4 97.1   98.1
2021Q1 97.3   98.5
2021Q2 97.9   98.9
2021Q3 99.7 99.7 99.7
2021Q4   100.7 100.0
2022Q1   100.9 100.2
2022Q2   101.2 100.8
2022Q3   101.6 101.1
2022Q4   101.9 101.5
2023Q1   102.0 101.5
2023Q2   102.4 101.5
2023Q3   102.6 102.4
2023Q4   102.8 102.6
2024Q1   103.1 103.0
2024Q2   103.3 103.3
2024Q3   103.6 103.6
2024Q4   103.8 103.8
Chart 2.31
Unemployment Rate Projections
Chart 2.31: Unemployment Rate Projections

Sources: Statistics Canada; Department of Finance Canada November 2021 survey of private sector economists; Department of Finance Canada calculations.

Text version
  Latest Actual November 2021 Survey 2008 Recession
2019Q4 5.7   6.1
2020Q1 6.4   6.6
2020Q2 13.1   7.9
2020Q3 10.1   8.6
2020Q4 8.8   8.6
2021Q1 8.4   8.5
2021Q2 8.0   8.3
2021Q3 7.1 7.1 8.1
2021Q4   6.7 8.1
2022Q1   6.4 7.8
2022Q2   6.1 7.7
2022Q3   5.9 7.6
2022Q4   5.8 7.3
2023Q1   5.8 7.5
2023Q2   5.7 7.5
2023Q3   5.7 7.3
2023Q4   5.7 7.3
2024Q1   5.7 7.4
2024Q2   5.7 7.2
2024Q3   5.7 7.1
2024Q4   5.7 7.1

Tailwinds and Headwinds for Growth

Although the results of the November private sector survey indicate a robust recovery over the forecast horizon, this outlook remains subject to significant uncertainty. The path forward will depend on a number of tailwinds and headwinds, which could either bolster the recovery or push it off course. Of concern, the global health situation has deteriorated in recent weeks, with resurgences of COVID-19 in some regions and the emergence of a new variant, Omicron.

The recovery continues to be backed by solid underlying fundamentals, which should support robust household spending and business investment. Consumer spending could beat expectations amid a significant build-up in savings by households and the strong rebound in the labour market. Business investment could pick up more than expected given the strength in profits and corporate balance sheets, strong demand, higher commodity prices, and the need for large-scale investment to expand capacity, improve supply chain resiliency, and reduce carbon emissions. More business investment in digitalization could strengthen productivity growth. At the same time, Canada’s world-class universities, growing tech sector, and highly educated and growing workforce will continue to give Canada an economic leg up.

Risks associated with COVID-19 continue to cloud the outlook. While Canada’s vaccination campaign and vaccine mandates have limited the spread of COVID-19 and enabled economic activity to gain momentum, there is still much unknown about the virus, and the emergence of new COVID-19 variants could lead to some setbacks. While it is too soon to determine the economic impacts of the recent resurgence of COVID-19 and the Omicron variant, these developments nonetheless pose a downside risk to Canada’s economic recovery. The global health situation remains fragile. Cases have been rising even in some countries with high vaccination rates, which has led to re-tightening in public health measures, notably in Europe. This could re-intensify global supply chain issues, adding to inflation risks and weighing on growth.

In addition to COVID-19, pockets of supply and labour shortages could constrain economic activity more than anticipated, potentially limiting growth and prolonging inflationary pressures. It will take time for unemployed workers to transition to job opportunities in new sectors and for global supply chains to expand capacity and address current shortages. Global supply chains will likely remain fragile for as long as the virus continues to spread in countries without wide access to vaccines and other measures to limit the spread of the disease. Moreover, the impact of B.C. flooding on critical transportation infrastructure and the flow of goods could put further pressure on supply chains in the near term, temporarily weighing on the recovery and increasing the prices of certain goods.

A high degree of uncertainty remains around the trajectory of the recovery. To illustrate the uncertainty in the medium-term outlook, the Department of Finance Canada has considered two alternative scenarios to the private sector projections (see Annex 1 for full details of the alternative scenarios).

Alternative Scenarios for the Medium-Term Outlook

The Department of Finance Canada’s downside scenario considers the impact of more prolonged supply-side issues and difficulty in adapting to COVID-19 if new variants of concern, such as Omicron, delay the return to normal economic conditions (Chart 2.32). Resurgent waves of the virus prevent a full recovery in hard-hit businesses in sectors requiring close contact, large gatherings, or international travel—leading to persistent unevenness that weighs on Canada’s economic potential. The ongoing pandemic also exacerbates the supply disruptions and labour shortages impacting a range of industries, with acute challenges extending until 2023. Meanwhile, the severe flooding in B.C. puts additional pressure on supply chains in the near term, weighing on the recovery in the fourth quarter of 2021. Despite weaker growth in the downside scenario compared to the November private sector survey, supply and labour shortages create significant cost pressures which keep inflation somewhat elevated into the second half of 2022.

In contrast, the upside scenario considers a world in which supply-side issues are resolved more quickly than expected. While certain industries continue to face challenges, the most acute supply and labour shortages ease by early 2022 as businesses adjust their supply chains and boost capital spending to alleviate capacity pressures and supply shortages. Meanwhile, Canadian consumers and businesses continue to adapt to ongoing COVID-19 risks, enabling a shift in spending from goods to services that takes pressure off supply chains and supports a robust recovery in hard-hit sectors. With stronger growth, inflation could be stronger than expected over the near term as robust demand offsets fading pressures from supply constraints. However, with increased inflationary pressures, elevated equity valuations, and elevated levels of indebtedness, a pullback in risk appetite could trigger a sharp tightening of global financial conditions—weighing on the global and Canadian recoveries.


Chart 2.32
Real GDP Projections
Chart 2.32: Real GDP Projections

Sources: Statistics Canada; Department of Finance Canada November 2021 survey of private sector economists; Department of Finance Canada calculations.

Text version
  Latest Actual Downside November 2021 Survey Upside
2020Q4 96.9      
2021Q1 98.1      
2021Q2 97.3      
2021Q3 98.6 98.6 98.6 98.6
2021Q4   99.1 99.8 100.1
2022Q1   100.0 101.0 101.3
2022Q2   100.7 102.2 102.9
2022Q3   101.4 103.3 104.4
2022Q4   102.0 104.0 105.6
2023Q1   102.6 104.7 106.6
2023Q2   103.4 105.2 107.2
2023Q3   104.2 105.7 107.7
2023Q4   104.9 106.3 108.0
2024Q1   105.8 106.8 108.5
2024Q2   106.4 107.3 109.0
2024Q3   106.9 107.8 109.4
2024Q4   107.4 108.3 109.8
2025Q1   107.9 108.8 110.3
2025Q2   108.4 109.3 110.8
2025Q3   108.8 109.7 111.3
2025Q4   109.3 110.2 111.8
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