The economy will be labouring under supply-chain issues, labour shortages, and weaker capital spending
Even if Canada manages to avoid a recession, markets should brace for a prolonged period of muted growth, according to Avery Shenfeld and Andrew Grantham of CIBC Capital Markets.
This is especially apparent in the Bank of Canada’s new, more pessimistic stance, which is now anticipating that the economy will be influenced by several longer-lasting factors – including supply-chain disruptions, labour shortages, and weaker growth in capital spending.
“COVID-19 continues to contribute in no small measure to each of these factors impeding the economy’s non-inflationary capacity,” Shenfeld and Grantham said in their latest markets analysis.
Read more: US contraction an omen for Canadian economy, says BMO’s Guatieri
Skill mismatches in the job market are likely to add an element of prolonged economic risk, the economists added.
“Extreme variance in employment and economic activity is why occupations that aren’t particularly skill-based (baggage handlers, restaurant waiters, etc.) have seen persistent job vacancies this year,” the duo said. “Those who held such jobs in early 2020 had two years to move on; unlike after a typical two- or three-quarter recession, they weren’t working in a related position in the prior year, so these businesses need fresh faces, and they’re all hiring at the same time.”
CIBC is anticipating inflation will go down, and stay down, “only because growth slows to well below what used to be considered its non-inflationary potential, and we expect that to remain the case through 2024.”
“So even if a recession is avoided, we’re in for a protracted period of sub-par growth, which shows up in our projections for the US as well,” Shenfeld and Grantham said.
