Freeland warns of 'difficult days ahead' as Canada's economy shows sign of weakness

Minister of Finance Chrystia Freeland arrives at a cabinet meeting. In a speech on Wednesday, Freeland warned that Canada's economy will experience
Minister of Finance Chrystia Freeland arrives at a cabinet meeting. In a speech on Wednesday, Freeland warned that Canada's economy will experience

Finance Minister Chrystia Freeland issued a warning to Canadians Wednesday — the coming months won't be pretty as rising interest rates slow a once red-hot economy and force some people out of their jobs.

The Bank of Canada's recent rate hikes to tame sky-high inflation will increase borrowing costs for businesses and consumers alike, which will send shockwaves throughout the economy, Freeland said.

Speaking at an auto industry conference in Windsor, Ont., Freeland said she would be honest with Canadians about the roadblocks that lie ahead and the threat of higher unemployment and mortgage rates — developments that could hurt many households.

"Our economy will slow. There will be people whose mortgage rates will rise. Businesses will no longer be booming. Our unemployment rate will no longer be at its record low. That's going to be the case in Canada. That will be the case in the U.S. and that will be the case in economies big and small around the world," Freeland said.

"There are still some difficult days ahead for Canada's economy. To say otherwise would be misleading."

The Bank of Canada — like other central banks, including the U.S. Federal Reserve — has been aggressively raising rates this year to establish price stability and achieve its 2 per cent inflation target.

There's a long way to go. Statistics Canada reported Wednesday that the Consumer Price Index (CPI) rose 6.9 per cent on a year-over-year basis in September — marginally lower than the 7 per cent increase reported the month before.

WATCH: 'Our economy will slow' — Freeland discusses latest inflation numbers

With inflation so sticky, economists are expecting more rate hikes to reduce demand and cool the economy. That could prompt a recession sometime in 2023.

While inflation has slowed somewhat in recent months as energy prices have stabilized, Freeland said the government will not be able to help everyone ride the inflationary wave.

"We cannot compensate every single Canadian for all of the costs of inflation driven by a global pandemic and Putin's invasion of Ukraine," Freeland said.

But she promised relief for the poorest Canadians who are most vulnerable to sudden spikes in the cost of food and rent.

Freeland pointed to the passage of Bill C-30, government legislation to temporarily double the GST credit paid to low-income households.

Government estimates say this bill will give eligible people without children an extra $234 this year, while couples with two children will receive an extra $467 to offset rising costs.

Another bill before the House of Commons, C-31, would provide rent relief and send cheques to parents to cover the cost of their children's dental coverage.

Freeland said social programs like employment insurance (EI) will be available to help people who lose their jobs in the coming economic disruption.

Sean Kilpatrick/Canadian Press
Sean Kilpatrick/Canadian Press

Critics, including Conservative Leader Pierre Poilievre, maintain it wasn't just pandemic-related supply chain disruptions or a war that caused inflation to spike here at home — that eye-popping government spending in response to the pandemic is also to blame.

During question period in the House of Commons on Wednesday, Poilievre said the federal Liberal government's "half-trillion dollar inflationary deficits" over the past two fiscal years are responsible for the higher costs.

Pointing to the planned low-income supports, Poilievre said the prime minister has done "nothing for the vast majority of struggling families."

"Even the small minority who do [receive the supports] will find it gobbled up by increased inflation," he said, citing a recent RBC Royal Bank report that found the average family will lose $3,000 in purchasing power this year as a result of higher prices and interest rates.

He called on the government to scrap planned hikes to the federal carbon levy — something Poilievre has called a "triple, triple, triple tax" that will drive food prices higher because it will impose added costs on all parts of the supply chain.

WATCH | Is a recession in Canada inevitable?

Trudeau defended the climate initiative, saying much of the money collected through the federal carbon tax is rebated. He said Conservatives can't be trusted on inflation relief because they oppose rental support and dental care for kids.

In the face of Tory criticism, Freeland said the federal government will continue to tighten its belt in the coming months so that Ottawa doesn't inadvertently drive inflation.

"Canadians are cutting back on costs and so too is our government. That's our part ... to not make inflation worse and more enduring," she said.

Asked later by reporters if the government has more inflation relief planned, Freeland said now is a time for fiscal restraint.

She said flooding the country with government support — like the emergency relief benefits Ottawa sent out during the worst of the pandemic — would be like "pouring fuel on the inflationary flames and we'd just make the Bank of Canada's job harder and inflation last longer."

With more stimulus money in circulation, there would be more demand for a limited supply of goods and services — which would only push prices higher and prompt yet another inflation fight, Freeland said.

"We're charting a balanced economic path. We're acting compassionately but we're very careful that our measures are targeted," she said. "We want to get past this inflation as soon as we can."

Freeland said Canada will deal with a slumping economy through a "muscular industrial policy" that will encourage companies to invest more in Canada. The government's last budget tabled in April included a $15 billion "Canada Growth Fund," a pool of money to stimulate growth in low-carbon industries and help with the country's transition to net-zero emissions.

The federal government has enjoyed some recent success in attracting major foreign investments in some economic sectors, notably electric vehicle manufacturing and critical minerals mining. Freeland said she wants to see more of that.

"We have a historic opportunity just in front of us to build an economy that will deliver great jobs and prosperity for generations to come," Freeland said.