Canadian Economy Headed Toward Slowdown: Report

The Canadian economy is expected to avoid a recession in the first half of 2023, according to the latest report by the Canadian Federation of Independent Business (CFIB).

In fact, the economy will experience growth, albeit modest, of 2.5 per cent and 1.2 per cent in the first and second quarters, respectively.

Inflation has continued to recede, reaching a year-over-year basis 4.8 per cent, excluding food and energy, in Q1. The corresponding forecast for Q2 is 3.7 per cent.

“Our economic forecasts suggest inflation is moderating,” says Simon Gaudreault, CFIB’s chief economist and vice-president of research. “While inflation is still too high, the quarter-over-quarter annualized rate of core inflation is forecasted at 2.8 per cent for Q2. This is within the Bank of Canada’s one to three per cent target range and therefore supports its decision to pause interest rate hikes.”

Retail sales contracted by 0.9 per cent in Q1, although they remain higher than a year ago. In the second quarter, sales are expected to grow by 0.6 per cent.

The national private sector job vacancy rate remained steady in the first quarter (4.7 per cent) and 658,900 jobs went unfilled.

“Although the national vacancy rates have eased, shortages of labour remain a big headache, with 207,800 more job vacancies nationally (up 46 per cent) than Q1 2019, which was, at that time, already a historical peak in our data,” says CFIB director of economics Andreea Bourgeois. “Our members continue telling us how they need to work more hours and decrease their service offerings to make up for staffing challenges.”

Across the country, several provinces, including New Brunswick, Ontario and Manitoba, saw slight quarterly declines, compared to the fourth quarter of 2022. On the other hand, Newfoundland and Labrador and Quebec recorded the highest vacancy rates of 5.5 per cent and 5.2 per cent, respectively, in the first quarter.

Businesses in the services sector continued to be the most affected by labour shortages with a vacancy rate of 7.5 per cent.