Base year effects – The dramatic economic impact of the COVID-19 pandemic will make it more challenging to track economic indicators and interpret their meaning this year. Many indicators are expressed in year-over-year growth, and there were sudden and sharp changes in these indicators last year. The timing and direction of last year’s changes will have to be taken into consideration when interpreting this year’s indicators.
Economic growth – The Bank of Canada has forecast that economic growth in Canada will be 6.0 per cent this year, and 4.5 per cent in 2022, assuming no further lockdown measures are required through the fall of 2021. Canada’s economy will be a beneficiary of stimulus spending in the US especially.
Jobs – Employment for service sector workers rebounded somewhat in June and July, as most provinces eased public health restrictions. The labour market has still not fully recovered, especially for self-employed workers, with the national unemployment rate at 7.5 per cent. Long-term unemployment remains high, as more than four hundred thousand people have been without work for six months or more as of July 2021.
Wages – Both public sector employers and private sector employers are likely to be reluctant to move on wages. As prices for food and shelter are continuing to rise, it will be especially critical for workers to stand firm on the need for real wage increases.
Inflation – Overall inflation has picked up, but it remains to be seen how much of the price pressure is temporary and how much is permanent. The overall Consumer Price Index (CPI) for May 2021 was 3.6 per cent, higher than the Bank of Canada’s target, but this is mostly because of base year effects. The Bank of Canada expects that supply bottlenecks will keep inflation around 3.0 per cent for the rest of 2021, but this pressure should ease in 2022 with inflation falling closer to 2.0 per cent.
Interest rates – The Bank of Canada has indicated that it expects to keep its key lending rate at 0.25 per cent through to the end of 2022. Government borrowing remains affordable, with 30-year federal government bonds selling at 2.0 per cent interest.