A recent forecast from the Bank of Montreal (BMO) predicts that the current economic climate, referred to as a “vibecession” by Canada’s Deputy Prime Minister Chrystia Freeland, may begin to stabilize by next year. In a report released by BMO economist Shelly Kaushik, it is suggested that a moderation in population growth, coupled with signs of economic recovery driven by easing monetary policy, could lead to the dissipation of this vibecession by 2025. Freeland’s remarks about proposed tax cuts on Goods and Services Tax (GST) and Harmonized Sales Tax (HST) — a measure that aims to address current economic challenges — were underlined in her previous statements, indicating that the federal government is taking steps to improve economic sentiment among Canadians.
Despite optimistic trends in macroeconomic indicators, many Canadians continue to experience financial strain, leading economists to label the situation a “me-cession.” While inflation rates appear to be retreating to levels targeted by the central bank, individuals are still grappling with rising costs for necessities such as food, housing, and rapidly increasing mortgage rates. Moreover, wage growth has not kept pace with the surges in these essential living costs, which enhances the sense of economic uncertainty among Canadians. Kaushik highlighted that although Canada’s gross domestic product (GDP) continues to grow, this growth is outpaced by the population increase, further compounding the perception of economic decline for many individuals.
Recent figures from Statistics Canada indicated that the economy expanded by one percent in the third quarter, a marked deceleration from the 2.2 percent annualized growth observed in the previous quarter and below the Bank of Canada’s projection of 1.5 percent growth. Kaushik emphasized that real GDP per capita is critical for assessing living standards, and its decline could contribute to individuals feeling as though the economy is in a recession. The sense of economic distress is tangible for many, despite positive data reflecting a broader recovery.
BMO’s report suggests that economic improvements might be partially driven by government initiatives designed to encourage consumer spending. One key proposal currently under consideration is a “tax holiday” on GST and HST. If approved, this measure would eliminate these taxes on various goods—from groceries to children’s clothing—during the holiday season, potentially lifting consumer confidence and incentivizing spending. The proposed tax holiday represents a significant effort to spur economic activity as the festive season approaches, and Freeland stressed the importance of restoring consumer confidence in the economy.
In addition to the tax holiday, the Canadian government is contemplating the distribution of $250 rebate checks, a plan that could also stimulate the economy, though its implementation remains uncertain due to ongoing political challenges. A report from TD Bank indicated that these financial incentives would not only boost spending but might also reduce the necessity for the Bank of Canada to implement aggressive interest rate cuts as a means of stimulating the economy.
While BMO’s analysis estimated that the combined impact of the proposed tax holiday and rebate checks could contribute approximately 0.3 percent to GDP, senior economist Robert Kavcic cautioned that although this figure may appear substantial, its overall impact on changing economic behavior could be limited. This nuanced understanding of the current economic landscape highlights the disconnect between statistical recovery and widespread public sentiment, emphasizing the complexity of consumer behavior in response to economic policies. As Canada navigates through these economic challenges, the effectiveness of governmental interventions in rekindling consumer confidence will be crucial for a sustained recovery.
