Evidence of meeting #81 for Finance in the 44th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was jean.
A recording is available from Parliament.
Conservative
Marty Morantz Conservative Charleswood—St. James—Assiniboia—Headingley, MB
My question is this: Are efforts being made to re-establish contact with him? Has anyone reached out to him to find out what's happened?
Liberal
The Chair Liberal Peter Fonseca
We will check on that right now.
We have been calling, and we're seeing.... His Internet has stopped working, Mr. Morantz.
Like I said, we have a lot of technical challenges going on today. I don't know what is happening, but the Internet is not working for Mr. Gregory.
We have Monsieur Jimmy Jean, and we have two minutes for Mr. Fast before we move to the next questioner.
Mr. Fast.
Conservative
Ed Fast Conservative Abbotsford, BC
All right, two minutes to Jimmy Jean.
Mr. Jean, would you agree that Canada's productivity is lagging?
Vice-President, Strategist and Chief Economist, Desjardins Group
Certainly. I think, having worked on this topic for a good part of my career, there are many reasons that productivity has been identified to be lagging versus the United States. I think the chief reason is our lack of dynamism on the innovation front in terms of our track record in being able to commercialize new innovations and make them viable businesses. That's where the U.S. has done so much better a job than we have. For sure, it has a deeper venture capital system and very vibrant universities—and so do we—but that's the key issue.
Conservative
Ed Fast Conservative Abbotsford, BC
I would love to hear your comment on the impact that declining private investment would have on our productivity and on our competitiveness.
Vice-President, Strategist and Chief Economist, Desjardins Group
Right. That was actually my second point on business investment.
For a good number of years, we have had our business investment relying heavily on investment in the commodity space. That has served us well in terms of generating growth, but we have seen a lack of investment in information and communication technologies.
It was quite stunning when the pandemic hit and you looked at how the U.S. responded. All of a sudden, people needed to work from home. Businesses had to invest massively in their capabilities on that front, and you have seen that pick up in the information and communication technology investment. We haven't seen that quite to the same extent here in Canada.
Moreover, we're in a phase, obviously, with the aging of the population, where businesses need to gain resilience against that demographic shift. One of those ways is automation. We are not seeing the same level of dynamism on this front in Canada as we are seeing in the U.S. That's a key factor that will allow companies in Canada not just to stay alive but to compete, because, all of a sudden, if you have companies in the U.S. that are fully automated and are able to produce at much cheaper costs, they are going to come after our market share. That's also an issue that we haven't seen much traction on in Canada, and that is a worry for us.
Liberal
The Chair Liberal Peter Fonseca
Thank you, Mr. Fast.
Now we're moving to the Liberals. I have Mr. Sorbara for five minutes, please.
I understand that it is from Mr. Gregory's side. It's a firewall issue that has gone up on his computer from his side, and that's what has blocked Mr. Gregory.
Chief Economist and Strategist, National Bank of Canada
I'm sorry. I think my sound is back.
Liberal
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Mr. Chair, just for clarification, can we ask Mr. Marion questions now?
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you for that clarification, Mr. Chair.
I'm going to ask it this way. Mr. Marion, just do thumbs-up or thumbs-down on your answer, okay?
The first question is this: With regard to what's happened in the United States with regard to the banking sector and the Federal Reserve's again being the backstop to the banking sector, are we concerned at all about the amount of credit origination—which we know fuels much of the economy—that has been impacted?
You can just go yes or no.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
Thank you.
This question is for Mr. Jean.
I apologize, I don't speak French very well.
With regard to inflation here in Canada, inflation is usually divided into goods inflation and services inflation. Are we seeing a deceleration in inflation on both the goods side and the services side?
Vice-President, Strategist and Chief Economist, Desjardins Group
We're seeing it mostly on the goods side, and especially on the energy side, I would say. Energy is the main contributor to the disinflation so far. When you look at food, obviously it's pretty sticky. When you look at one measure of core inflation, which is inflation excluding food and energy, it hasn't moved that much. It's stopped accelerating since last summer, but it hasn't moved that much lower.
So yes, I would say it's in goods. That's related to what we're seeing internationally in terms of the easing of supply chains. In particular, central banks will be focusing on services, excluding shelter, which, as Mr. Gregory mentioned, is seeing the effect of higher mortgage interest costs. We expect that to continue. The contribution of shelter will be very sticky, and certainly higher than what we had seen prior to the pandemic.
That means the Bank of Canada will need to see services inflation slow down quite significantly if it hopes to bring inflation down to 2%. That will likely be the tricky part. We expect 2% to 2.5% at the end of this year. That's going to be the low-hanging fruit. Going the full way to 2% will be more difficult because of those factors of stickiness.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I have one more question. It's more on the philosophical side. It was referenced by Mr. Gregory, I believe, with regard to the cost of money.
I fundamentally believe in this. From 2008-09, and the great financial recession or great financial crisis that the world went through, up until now, would it be fair to state—there was a great documentary on this last Sunday night on PBS—that the age of easy money is now over?
Mr. Marion, can you give a thumbs-up or a thumbs-down?
You gave a thumbs-up, Mr. Marion. Thank you for agreeing to that.
Monsieur Jean, would you also agree that the age of easy money is now over?
Vice-President, Strategist and Chief Economist, Desjardins Group
Yes. I agree. This is exactly why we're seeing some banks struggle. We have a whole ecosystem, a global financial market ecosystem, including here in Canada, that's been structured around the idea of low interest rates forever. Now that paradigm is changing, and we're seeing the ramifications.
Given the inflation scare and the long-term pressure that there's going to be on inflation from various structural sources, it's going to be very difficult for central banks to bring financing conditions back to where they were.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I would add that the idea that you do not hear at all bandied out about is modern monetary theory. I have my graduate degree in economics and studied monetary theory. You don't hear anything about MMT anymore—
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
—thank God, exactly—because it was an idea that came about because the rates and money were at too-low levels, I would say, for a long time. Now that the age of easy money.... As Warren Buffett would say, when the tide goes out, you see who's not wearing shorts, if I can use that term.
I thank the economists for agreeing on that statement.
Liberal
Liberal
Yvan Baker Liberal Etobicoke Centre, ON
Thank you.
I'm back to you, Mr. Jean.
I'd like to return to a subject we discussed earlier.
Although Canada's GDP has been reflecting a slowdown in economic activity since late 2022, the labour market continues to be resilient and spending by Canadians remains high.
What impact will this slowdown have on our economy?
Vice-President, Strategist and Chief Economist, Desjardins Group
Past outcomes also have to be taken into consideration. In connection with what you said about consumers, Canada experienced shrinking domestic demand in the third quarter.
As I mentioned, Ontario recorded its biggest drop in real consumption since 1992, apart from during the pandemic. The slowdown in economic activity does have an impact.
We also know that monetary policy covers a lengthy and variable period of time. This means that we have not yet felt the full impact of the first interest rate hike, which was in March 2022.
We'll feel it more in the second half of the year, particularly because of the 75 to 100 basis point increases that were introduced later.
The effects of the slowdown will continue to be felt. I don't think that the labour market resilience or decreased consumption that we have observed are really providing us with useful information at this point.
In Quebec, the average monthly payment on a mortgage loan for the purchase of a first property has risen from $1,350 to $2,550 because of interest rate hikes. It has become extremely prohibitive.
Some people work in trades that are sensitive to the slowdown; they will feel the effects, not only on their interest payments, but on their income and employment prospects.