“Though Canadian households may be feeling the pinch, Canada’s economy is benefiting from significantly higher commodity and energy prices,” says LEI author and MLI Munk Senior Fellow Philip Cross. “The Q2 slump appears to have been temporary and tied to pandemic mitigation efforts. With a strong vaccination picture and a low overall COVID-19 caseload, there is some reason for optimism that this growth in the LEI may persist.”
Composed of 10 components, the LEI is a tool designed to predict Canada’s future economic growth and track changes within Canada’s business cycle. Rising to 0.7 percent growth, this latest LEI update reflects data from September and is a bump from the slower 0.3 percent growth posted in August’s LEI numbers. However, this is significantly lower than the several months of 1.0 percent LEI growth experienced through much of Q1 2021.
Most of the LEI components posted growth in September’s numbers, with commodity prices and the stock market again leading the charge. This was most notable in the energy sector, with global energy markets struggling to meet demand and Canada’s industry enjoying significantly heightened prices. As well, with fewer Canadians claiming Employment Insurance, Canada’s lacklustre unemployment numbers will likely continue to improve.
“Though growth has returned, this will be of limited consequence to Canadians if other economic trends take root,” warns Cross. “Even these positive numbers are still modest, and when considering Canada’s troublingly high inflation and slow wage growth, there is reason to remain concerned about the economy overall.” Additionally, with supply shortages occurring in a wide range of industries, inflation is likely much greater than official measures suggest.
If Canada is to break out of its long-term pattern of moribund economic growth, provide the wealth necessary to improve Canadians’ prosperity, finance the transition necessary to meet climate goals, and much more, the federal government should set concrete economic growth targets. A recent MLI paper by Cross proposes that Ottawa set the target of doubling Canada’s GDP by 2050.
“A central tenet of the proposal to double GDP by 2050 is that accepting slow growth as our economy’s ‘New Normal’ understates the importance poor policies have had on dampening growth in recent years.”
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