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Oakville Chamber hosts RBC Economic Outlook

61% of Canadians feel they can’t afford to pay for gas for their cars, and 19% feel they have absolutely no money to spare.
RBC Senior Economist Josh Nye addresses the Chamber audience | Lawson Hunter
RBC Senior Economist Josh Nye addresses the Chamber audience | Lawson Hunter

The Oakville Chamber of Commerce hosted a sold-out event to help the business community and residents understand the current financial lay of the land and to give us a peek at some predictions for 2023. Unfortunately, it’s not all roses and sunshine, but it’s not all bad either.

Josh Nye, Senior Economist with Royal Bank of Canada's Economics & Thought Leadership Team, stated the obvious: "2022 was a challenging year. Food and other commodity prices experienced the sharpest increase last year since the 1980s."

"The Bank of Canada increased its interest rate by 400 basis points (4%) and is expected to raise the policy interest rate by another 25 basis points (0.25% - it did). We do think that this will be the end of the ‘tightening’ cycle."

Packed house for the Oakville Chamber of Commerce
Packed house for the Oakville Chamber of Commerce's RBC Economic Outlook 2023 in January | Lawson Hunter

Nye noted that ‘headline’ inflation should come down somewhat due to less pressure from energy prices. "Food inflation has been a bit ‘stickier’ year over year," said Nye.

"We’ve seen agricultural commodity prices coming down, but that hasn’t really fed into a grocery store just yet."

Setting aside global influences such as the Russian invasion of Ukraine and COVID affecting China’s supply chains and energy supplies, central banks are focusing on domestic sources of inflation, particularly tight labour market conditions that are driving wages higher.

"Our unemployment rate of 5% is at its lowest in several decades," said Nye. "There are new people entering the workforce, which will make it more difficult for people to find a job, which lowers the pressure on wages and helps decrease the inflation rate."

Nye predicted a few quarters of slowdown due to the high interest rates, but a slow return to normalcy will begin by the end of the year.

"The peak in home sales last year was affected once the Bank of Canada started raising interest rates,” he continued. "We’re down about 13% from that peak."

"We feel that that’s got a bit further to run. It’s going to be a relatively soft housing market this spring. We are starting to see signs of stabilization in the market with the sales-to-new listings ratio."

Nye also highlighted that consumer spending has become more pessimistic, leading to lower demand and lower GDP growth due to the expectations of a recession. This theme was amplified by the Chamber’s second guest, Sean Simpson, Senior Vice President, IPSOS.

"There’s been a fundamental change in public opinion over the past 2-3 years,” Simpson opened his remarks with. "At the start of this pandemic, we were ‘all in this together’ and we all felt pretty good."

"Financial health was precarious for many.  Some were laid off, but CERB payments helped people with a soft landing. Then, after extended lockdown, many people were not in a really good mood."

Simpson continued, "People started feeling less in common with their neighbours, less in common with other parts of the country. There is less ‘we’ and more ‘me’ in their thinking. Canadians are now saying that their financial health has deteriorated. People are now more negative."

So what are on Canadians’ minds today?

IPSOS has observed that healthcare is (still) number one but at a higher level than before, realizing that throwing money at healthcare is not a solution and that governments may not be up to the task of solving the problems. Number two is the interest rate and inflation.

"This occasionally is on the list, but it’s never been this high before," Simpson said. "For some of the population, such as Gen Xers or Millennials, they don’t know what it’s like to be in this kind of inflationary environment."

Another factor in thinking is that many boomers own a home while younger generations can’t see that for themselves.

Simpson went on to explain that this dynamic has also changed the thinking about affordable housing. Older generations thought of social housing as a solution for homelessness; now it’s more about “will my kids be able to afford a home?”

Simpson also noted that inflation was a bigger concern for Canadians than those in other countries, even in Argentina, with its hyperinflation (90%) or in Britain, with a more significant inflation rate than Canada. "We cannot underestimate the amount of concern Canadians have about inflation," he stated.

Nineteen per cent of Canadians feel they have absolutely no money to spare. Thirty per cent have to make major changes to afford their lifestyle. Sixty one per cent feel they can’t afford to pay for gas for their car (even though prices have come down). And sixty-seven per cent of Canadians feel they will have trouble affording to retire.

Simpson warned the audience that Canadians and particularly the business community, need to focus on these issues if we are to come through the (soft landing) recession.

Sean Simpson, IPSOS, Josh Nye, RBC, with moderator Daniel Safayeni,  Ontario Chamber of Commerce | Lawson Hunter
Sean Simpson, IPSOS, Josh Nye, RBC, with moderator Daniel Safayeni, Ontario Chamber of Commerce | Lawson Hunter