2:28 PM ET Wed, 11 Aug 2018 – 12:15:38 In its annual report on business, the Canadian Association of Independent Business (CBIB) said it expects the Canadian economy to contract by 0.2 per cent this year and by 1.1 per cent in 2018.
The report predicts that, despite some improvement in the labor market, Canadians are likely to remain deeply vulnerable to inflation and the prospect of further fiscal consolidation in the coming years.
The average Canadian’s take home pay, adjusted for inflation, is expected to drop by 2.2 percentage points by the end of 2018, the CBIB said in its latest report.
“The Canadian economy is on the verge of being in a deep recession,” said Kevin Page, CEO of CBIB.
“In the face of such bleak prospects, it is essential that businesses take all necessary steps to diversify their business portfolios to take advantage of the best possible opportunities.”
The CBIB forecast the average income per Canadian will drop by 3.7 per cent over the next five years, with the typical wage increase only being 2.6 per cent.
The Canadian economy contracted by 0 of the 1.6 million jobs added in 2018 and the number of unemployed Canadians is expected grow by 12,000.
The latest report shows Canada’s employment situation is on track to expand by only 0.6 percentage points, which the government attributes to a stronger than expected Canadian dollar, a stronger housing market and an increase in the value of the Canadian dollar.
But it is expected the country’s unemployment rate will increase to 6.6% by the middle of next year, a level not seen since the global financial crisis of 2008.
“It is clear that the economic outlook is not looking great for Canada’s small and medium-sized enterprises,” said Stephen Rees, chief economist at the Conference Board of Canada.
“However, the challenges remain for Canada to achieve sustained growth.”
In the past two years, Canada’s economy has contracted by 1 per cent, which was the biggest contraction in the world.
While the number in the labour force has grown by 3 per cent annually, the average hourly earnings have declined by 2 per cent during the same period.
“With the economy continuing to contract, it’s important to keep an eye on what impact that will have on business owners,” said Mark Zandi, chief economic adviser at Moody’s Analytics.
“Whether it’s the impact on employment, the impact of a weak Canadian dollar or even the impact that it’s having on consumer spending,” he added.
While there are many factors behind the weakness of the economy, the biggest is the continued weakness of consumer spending, according to Zandi.
The Canada Consumer Comfort Index, which tracks consumer spending and sentiment, fell to a seasonally adjusted low of 60.7 in October, the lowest level since October 2016.
It also hit a two-year low in October 2017, and has fallen by 2 percentage points since the beginning of this year.
“Overall, the economic recovery continues to lag behind the overall economy and, in some quarters, is weaker than it should be,” said Zandi in a release.
“This is likely to continue for some time.”
A number of factors are expected to have a large impact on the economy.
The government will likely need to act quickly on tax cuts and infrastructure spending to boost growth and help the economy rebound from the Great Recession of 2008-09, according Zandi’s forecast.
“I don’t think there’s any doubt that this recession is continuing to affect the economy and that a tax cut or infrastructure spending program will be key in helping to restore the economy,” he said.
“But, the tax cuts are still going to take time to reach the level of tax revenues that they need to support economic growth, so there’s no guarantee that the government will do that by the next election.”
Another key issue is the trade deficit, which has ballooned to $50 billion in the first six months of 2018.
According to the latest data from Statistics Canada, this was up from $26 billion in June 2018.
Statistics Canada says the trade gap has widened from $7.2 billion in 2017 to $33.1 billion in 2018, and the economy is likely adding more than 2.5 million jobs.
“While Canada’s trade deficit is projected to be relatively stable, we still expect that it will grow to a much larger amount than what we forecast,” Zandi said.
The economy is also facing a potential slowdown in new orders, which could be one of the main reasons for the sluggish pace of growth.
“New orders have been a key contributor to the growth in the Canadian labour market over the past three years,” Zanda said.
He said the new orders data will also provide the government with more information on the extent to which employers are reducing hours of work.
“We believe that in the near term, we will see an increase (in labour force participation), which will help offset the labour market slack created by the weak labour market