Careful, there’s another force out there working against Canada’s economy

A rapidly cooling housing market, excessive family debt and the aggressive rate-hiking of the Financial institution of Canada have all raised the spectre of recession in current months.

However Capital Economics says there’s one other pressure that threatens to decrease Canada’s progress and asks the query: “Will Canadians retire themselves right into a recession?”

July’s employment numbers have been a little bit of “head scratcher” for economists just lately when the economy shed 30,600 jobs as a substitute of gaining 15,000 as anticipated. The employment drop adopted a lack of 43,200 jobs in June, however the jobless charge stayed on the traditionally low 4.9% as a result of the labour pressure had shrunk.

The shock drop was partly as a result of retirements surged to a report excessive, stated Capital.

Retirements have been rising for years due to getting older child boomers, however the current spike seems to have been as a result of individuals had delayed retirement through the pandemic, the place labour pressure participation for Canadians aged 55 to 64 rose properly above pre-pandemic norms.

The economists at Nationwide Financial institution of Canada stated 70% of the job losses in July have been from employees aged 55 and over, with Statistics Canada reporting {that a} report 300,000 Canadians retired prior to now 12 months. “Unforced retirements, not layoffs, appear to be the principle explanation for the discount,” stated Nationwide.

Whereas Capital economists don’t assume retirements will rise a lot additional, it additionally doesn’t assume they may ease a lot from the present charge of 25,000 a month as a result of the share of the inhabitants over 55 continues to rise.

Neither is there aid on the horizon from the youthful generations. The participation charge of Canadians aged 25 to 54 surged to a report excessive through the pandemic however has since began to say no. In response to UN projections, with out immigration, the variety of individuals aged 18 to 54 will drop by 100,000 or 0.5% yearly.

Canada then shall be reliant on immigration for labour pressure progress, stated Capital economist Stephen Brown. However even that will fall quick.

“Future waves needs to be extra useful for the labour pressure however, if historical past is any information, the federal government’s annual goal of 450,000 new arrivals will nonetheless enhance the labour pressure by solely 26,000 monthly, which might solely marginally offset the possible variety of retirees,” he wrote.

Capital now sees its employment progress forecasts of 0.6% in 2023 and 1.2% in 2024 in danger. The economic system would possibly get a lift if the hours labored per particular person and output per hour improved however with each of those declining currently that shouldn’t be counted on, stated Brown.

“All this raises the draw back dangers to GDP, significantly if retirements enhance any additional,” he stated.