Skip to main content

Report on Business Canada’s economy expected to rebound despite slow wage growth: BoC

The Bank of Canada is convinced that Canada’s economy is poised to rebound after a “detour” caused by lower oil prices and a slowdown in the once-booming housing market.

The central bank expects economic growth to bounce back in the second quarter, senior deputy governor Carolyn Wilkins said in speech Thursday in Toronto that focused mainly on the puzzle of slow wage growth.

There has been speculation in financial markets about a possible recession as early as this year. But the Bank of Canada isn’t buying it.

Story continues below advertisement

“We expect the economic expansion to pick up again after this detour,” Ms. Wilkins said.

Ms. Wilkins’s use of the word “detour” – a new one for the bank − reinforces its conviction that the current soft patch will be short-lived and that it’s still committed to pushing rates higher.

Nonetheless, the bank is being cagey about the direction and timing of its next interest-rate move. Ms. Wilkins said there are risks “on both sides of the outlook.”

The slowdown was evident in the latest GDP figures from Statistics Canada, released Thursday. Canada’s economy shrank 0.1 per cent in November.

Like the U.S. Federal Reserve, the Bank of Canada has put on hold a plan to get its key interest rate up the so-called neutral rate – the level where it neither heats up the economy nor slows it down. The bank has raised its key rate five times since mid-2017, to 1.75 per cent, but it has been on hold since last October.

Canadian Imperial Bank of Commerce economist Royce Mendes said Ms. Wilkins’s comments suggest the Bank of Canada has a rosier view of the economic landscape than the Fed. And that likely means another rate hike later this year, he said in a research note.

Recent tame wage growth gives the Bank of Canada another reason to move slowly on rate hikes because it means there is still slack in the economy. In her speech to the Toronto Board of Trade, Ms. Wilkins acknowledged that wages are not increasing as fast as the bank anticipated now that the economy is near full employment and the jobless rate, at 5.6 per cent, is lower than it has been since the mid-1970s.

Story continues below advertisement

Wages grew at about 2.5 per cent last year in Canada. Based on job-market fundamentals, wages should be rising at about 3 per cent a year, Ms. Wilkins said.

Ms. Wilkins offered two new possible explanations for the wage puzzle – a slower rate of Canadians changing jobs since the last most recent recession and the growing number of people working “non-standard” jobs, including self-employed contract or “gig” work, such as driving for Uber. Citing new research by the bank, she said about 700,000 Canadians are now doing non-standard work because weak economic conditions are keeping them from “more formal” jobs. She also pointed out that labour-market “churn” remains below prefinancial crisis levels because workers are behaving more cautiously when it comes to switching jobs.

“People may be reluctant to search for a better job even if they would like one,” she said, adding that churn would pick up as employment continues to grow.

In a report this week, the Royal Bank of Canada also identified slower job churn as a reason for sluggish wage growth. RBC economist Nathan Janzen said baby boom workers may be less interested in switching jobs the nearer they get to retirement age.

Nonetheless, there are tentative signs that workers are starting to exploit their bargaining power in today’s tight labour market to push for raises. Like Ms. Wilkins, RBC expects overall wage growth to accelerate this year.

Ms. Wilkins also offered a few other reasons on why wage growth might be slower than expected. These include the impact of the slowdown in the oil patch, a growing mismatch between the skills employers need and the ones available workers actually have, and the reluctance of workers to move to cities such as Toronto to work because of due to high housing costs and long commutes.

Story continues below advertisement

“I’ll bet a few people in this room have had prize candidates slip away once they realized they could not afford Greater Toronto Area housing prices, or were not keen to spend hours commuting to work every day,” she said.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter