Tuesday, June 18, 2024

Canada’s Economy Stays Strong Despite Higher Interest Rates

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Jillian Castillo
Jillian Castillo
"Proud thinker. Tv fanatic. Communicator. Evil student. Food junkie. Passionate coffee geek. Award-winning alcohol advocate."

 

It’s no secret that many of the world’s leading powers have been struggling with inflation in the past months and even years. Of course, this was expected after the pandemic, and what’s most important at times like these is what the governments do to ease up the effects of inflation and how long it takes them to return it back to normal.

Canada is one country that has shown excellent economic improvements in high inflation times. Namely, even though inflation is high, Canada is showing positive economic movements and figures. But how did it manage to do this? Well, let’s find by reviewing some of the biggest drivers of economic stability that have helped Canada stay strong despite higher interest rates!

Lower Energy Costs

Lower energy costs have been imperative for Canada and Canadians these past few months. They’ve helped Canadians deal with inflation better by allowing them to leave more money aside for other expenditures, like food and other necessities.

When Russia first invaded Ukraine, energy prices soared all around the world. So, it was a difficult time for both households and businesses. However, now, natural gas and fuel oil costs are much lower compared to then. And with summer and intensive AC-powered cooling periods on the horizon, having lower energy costs is just what the doctor ordered.

Gas Prices Already Reached Their Peak

Russia’s invasion also left the world with huge gas prices and a shortage of supply. This led to massive gas station runs, which led to even higher prices and scarce supply.

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And while some countries are still struggling to recover, Canada is showing excellent results. Namely, as of May, gas prices in Canada are officially 20% lower compared to a year ago. And don’t get us wrong, the prices are still high, but they’re lower than they were, which is a great path forward.

Eased Price Growth

Now, food prices are a more touchy subject. That’s because they’re still increasing more and more every day, even now, making food much more expensive than it was pre-pandemic. However, the good news is that food prices appear to have reached their peak. So, since the peak has passed, Canadians won’t have to set aside a lot more money every month for new surges. The surges will be lower and lower, boosting citizens’ buying power while they’re at it.

The surge in food prices over the last year can be attributed to a few factors. One of them is choked supply chains that make it more difficult and expensive to transport food from one place to another. The second factor is labor costs, which surged and affected food prices directly. Moreover, agriculture commodity prices were also higher. However, all of those factors have now eased, as global shipping costs fall while local transportation costs increase more slowly. Also, agriculture food commodity prices are down by 15% from their all-time peak in 2022.

Increased Revenues from Online Businesses

Canada’s economy is not just standing strong because of traditional factors. Surprisingly, many online businesses are adding to this strength. For example, websites offering online casino bonuses in Canada are generating revenue through legal, regulated activities. And it’s not just casinos. Other online platforms, like streaming services and e-commerce websites, are also doing really well. This online boom is helping the economy stay solid, even when facing higher interest rates.

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Strong Labour Market

Compared to pre-pandemic times, Canada’s economy is now 103% bigger. This marks an extremely-fast recovery for the country as it is the second-strongest recovery in the G7. Canada’s remarkable recovery can be attributed to its strong population growth as well as the government’s COVID-19 Economic Response Plan and Immigration Levels Plan. Also, more Canadian households and businesses managed to stay afloat and fight the pandemic-driven recession.

And thanks to Canada’s rapid recovery and now stable economic growth, about 830,000 more Canadians are employed compared to pre-pandemic times. Also, Canada’s unemployment rate is at 5.2%, which is near the country’s record-low of 4.9%.

So, the low unemployment rate that Canada has right now is one of the leading drivers behind its economic stability in high inflation times. Today, more Canadians have better middle-class jobs, which also allowed previously lower-wage workers to get more spending power.

Higher Immigration

Higher immigration movements have helped Canada fill out vacant job positions quickly. And thanks to that, the unemployment rate is sitting pretty at 5.2% after not having moved since the end of 2022.

So, more people have higher-paying jobs, and economy-wide output is also higher. Thus, businesses are getting larger revenues while more workers are getting higher salary incomes. Also, the influx of migrant workers resulted in higher overall consumption, which further boosted the country’s economy.

Conclusion

As the country with the second-strongest post-pandemic recovery in the G7, Canada is looking better and better every day. The leading drivers of its remarkable economic improvements and stability, even during high inflation times, include lower energy costs, increased revenues from online businesses, slower-paced price growth, a strong labor market, and more.

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Of course, there are many other smaller drivers that boost Canada’s economic improvements further. However, the ones we mentioned are some of the biggest ones that have a direct impact on the country’s GDP and economic health.

 

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