Canada is experiencing a recession masked by immigration-driven consumption, former Bank of Canada Governor Stephen Poloz said on Tuesday, as per-capita GDP continues its downward trend.
Poloz, now special adviser at Osler, Hoskin & Harcourt LLP, said during a webinar that traditional recession indicators have been obscured by new arrivals. “I would say we’re in a recession, I wouldn’t even call it a technical one,” he said, explaining that immigrant consumers “buy the basics in life, and that boosts our consumption enough” to hide underlying weakness.
Statistics Canada reported last Friday that GDP per capita fell 0.4% in the third quarter, marking its sixth straight quarterly decline, and has been negative in eight of the last nine quarters. While overall economic growth reached 2.1% in the second quarter, it slowed to 1% in the third quarter, with Poloz noting that “the only good news… is government spending. That’s not the sort of thing to build your recovery on.”
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The former central bank chief pointed to a 30% increase in living costs from recent inflation as a key factor suppressing consumer spending. He also warned that potential 25% tariffs on Canadian imports threatened by incoming US president-elect Donald Trump could deepen economic challenges.
The Canadian Chamber of Commerce estimates such tariffs could reduce Canada’s GDP by 2.6% while cutting US GDP by 1.6%.
Poloz cautioned that tariffs could force central banks into a difficult position of maintaining higher interest rates despite economic slowdown. “There’s the presentation to the bank, the economy is slowing, but inflation is picking up because of tariffs,” he said. “I think most central banks are going to say, I gotta be worried about the inflation part. And so that’s a recipe for deeper stagflation.”
Regarding recent government stimulus measures, including a two-month goods and services tax pause, Poloz was skeptical. “There are so many other ways to boost the economy that would provide a longer lasting effect,” he said. “So giving away these things is kind of like giving somebody a fish instead of giving them a fishing rod.”
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