A Turning Point for the Economy – But Will It Be Enough?

By Honourable A Anne McLellan, P.C., O.C.,A.O.E. and Hon. Lisa Raitt , Co-chairs of the Coalition for a Better Future

For over a year, there’s been growing anticipation that better times are ahead for the Canadian economy. Recent developments suggest that this long-promised improvement might finally be taking shape, providing a more optimistic economic outlook.

Inflation has fallen to its lowest level in over three years, and the Bank of Canada is now entering what looks to be an aggressive cycle of interest rate cuts. These moves should offer much-needed relief to both a sluggish economy and the heavily indebted households across the country.

The much-anticipated "soft landing"—where inflation is tamed without triggering a major recession—still appears within reach.

However, as Bank of Canada Governor Tiff Macklem cautioned recently, the path forward remains uncertain. While the early signs are promising, key economic challenges remain, and it’s unclear if this recovery will deliver the sustained growth needed to fully lift the economy.

Despite positive signals on inflation, economic growth remains stagnant. Since April, monthly GDP data show an economy that has largely flatlined. More concerning, the labour market appears to be weakening, with unemployment rising and employment gains slowing.

Earlier this year, the job market held strong, despite broader economic weakness. Canada created over 400,000 jobs in 2023 and nearly 200,000 more in the first five months of 2024. But since May, job growth has significantly slowed, with only 18,000 net jobs created—a concerning trend given the pace of population growth.

Young workers and recent immigrants have been hit hardest. For example, while the unemployment rate for Canadian-born workers aged 25 to 54 has only risen slightly to 4.4 per cent, the unemployment rate for young immigrants has surged to over 20 per cent, a nearly 10 percentage point increase since the end of 2022.

So far, employers haven’t resorted to large-scale layoffs, and wages continue to rise above inflation. But, with rapid population growth and sluggish demand for workers, the situation could become more challenging if labour market conditions don’t improve.

While falling inflation and lower interest rates are welcome developments, the difficulties we’re seeing in the labour market are a reminder that a better macroeconomic environment isn't sufficient to address the deeper, structural issues that continue to weigh on Canada’s economy. High borrowing costs and weak consumer demand have exacerbated the challenges, but long-standing issues—such as affordable housing shortages, smarter regulation and the need for increased private sector investment—remain critical.

The Coalition for a Better Future believes that sustainable improvements in living standards and wages will come from boosting Canada’s productive capacity. This will require smart policies that encourage private sector investment, support sustainable growth, and address structural challenges like housing and climate transition.

As positive as lower interest rates might be in the short term, they won’t be the silver bullet needed to overcome these deeper challenges. For Canada’s economy to experience sustained, long-term growth, we need to focus on structural changes that will build a more inclusive and resilient future.