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Soft Landing More Credible

A soft landing ‒ which had been viewed in some circles as a pie-in-the sky scenario ‒ now looks more and more credible, says Fred Demers, director of multi-asset solutions, at BMO Global Asset Management’s in a ‘Market Commentary.’ Canada’s economy still faces challenges. The job numbers for January came in very strong at north of 150,000 jobs created, “which is outstanding given that in a good year, the country tends to create around 225,000 jobs ‒ that’s the regular ‘cruising altitude,’ so to speak, and we almost hit it in just a single month,” he says. This is particularly surprising because, unlike the U.S., the Canadian labour market had already fully recovered from COVID-related losses. “The big story” is the underappreciation of labour shortages combined with strong population growth fueled largely by immigration. In the third quarter of 2022, the population grew by 0.9 per cent. In an average year, the population grows by a little more than one per cent. High population growth means that Canada now has the people necessary to fill vacant jobs and the expectation is for continued surprise on the upside in the Canadian labour market because it’s going to take some time before labour demand cools to the point of weakness. Overall, this is good news as it likely means stronger economic growth for the year and could be a boon to the Canadian housing market, as job security and regular paycheques are crucial for people’s ability to make their monthly payments. Another positive effect is that more people entering the labour force means an expansion of the supply side of the economy, which is not inflationary. Canada will be able to produce more goods and services because people are available to do the work instead of the cost of the labour being bid up through higher wages. “That’s why we’ve seen wages starting to moderate, which is good news for the inflation outlook,” he says.

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