Canada’s labor shortage will be a long-term challenge for the economy

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RSM Canada (“RSM”), a leading global provider of audit, tax and advisory services focused on middle market companies, today launched its third 2022 edition of “The Real Economy, Canada‘ – a quarterly report that provides Canadian businesses with analysis and insight into the country’s complex economic conditions.

As governments and industries around the world grapple with inflation, rising costs and a host of other economic hurdles, the latest edition of The Real Economy, Canada examine how from Canada the economy is doing right now, and what are the key issues and opportunities businesses need to be aware of in the coming months.

Key findings from this quarter’s report include:

Recession talk is premature, although economic headwinds are having an impact.

  • The Canadian economy has rebounded strongly from the pandemic shutdowns as pent-up consumer demand and government support have fueled GDP growth in every quarter since the third quarter of 2021.
  • However, inflation and rising unemployment, combined with persistent labor and housing shortages present a high risk that Canada could enter a recession early next year.
  • Inflation will take some time to slow despite the potential peak in the summer, as the war in Ukraine continues and the labor market remains tight.
  • Businesses should expect the Bank of Canada to continue raising rates for the rest of the year rather than releasing them prematurely.

Canada will need to accelerate its immigration targets to address long-term labor and productivity issues.

  • Falling labor force participation rates, aging populations and falling fertility rates mean that Canada must rely on immigration – rather than natural growth – to replenish the labor pool.
  • Canadian policymakers aim to bring in more than 400,000 immigrants per year between 2022 and 2024 following the growth immigration has spurred in the millennial and Gen Z workforce.
  • Immigrants have also been shown to increase productivity rates, which Canada cannot afford to ignore labor productivity in Canada could fall to last among Organization for Economic Co-operation and Development countries in just a decade.
  • However, Canada must streamline the accreditation process if it wants skilled immigrants to fill the most critical labor shortages, such as in the health care industry.

Higher interest rates have cooled from Canada housing market, but demand remains high.

  • The construction industry has been hit hard by rising interest rates and the resulting slowdown now threatens to from Canada more acute housing shortage.
  • Rising rates, combined with inflation, threaten to put a damper on housing construction for the foreseeable future, potentially deepening the housing affordability crisis in Canada.
  • While most industries gained jobs, the construction industry lost more than 23,000 in April and June, despite a hot labor market.
  • However, Canada Mortgage and Housing Corporation’s new mortgage loan insurance program allows developers to access mortgages on more favorable financial terms, encouraging them to build more affordable housing and energy-efficient housing.

Canada will benefit from United States’ Inflation reduction law and green energy transition.

  • This legislative and financial commitment by from Canada closest trading partner provides Canadian businesses with some certainty as to where they can hang their hats from an economic development perspective.
  • from Canada the mining and manufacturing sectors will be well placed to benefit as they provide the products and minerals needed to facilitate the clean energy transition, particularly with regard to the development of electric vehicles.
  • However from Canada The climate change strategy has been quite robust, the ERI and the resulting opportunities will help provide a clearer picture of how to build and economically grow clean energy industries.

from Canada industrial sector is reaping the rewards of strong global demand.

  • The Prairie provinces dominate the economy due to growing global demand for energy and rare metals.
  • Canadian industrial production rose more than 5% year-over-year in the second quarter, well above pre-pandemic levels, and should end the year on a high note.
  • However, industrial production could decline in the coming months as global markets anticipate a recession and consumer demand slows.

“Despite a robust recovery from the COVID-19 pandemic lockdowns, Canadian economic growth will continue to slow due to persistent inflation and a historically tight labor market,” said Tu Nguyen, Economist and ESG Director at RSM Canada. “But the real long-term challenge will be labor shortages, with declining worker participation hitting the healthcare, hospitality and catering sectors particularly hard.”

Nguyen continues: “There is also a fundamental shift in the demographics of from Canada labor force, leading policy makers to explore ambitious immigration targets to fill the labor gap. But government, industry associations and organizations will actually need to go further and streamline the accreditation process so that internationally trained workers can fill much-needed roles in Canada. Only then Canada I hope to see more significant growth in labor supply and productivity.

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