Northern Exposure

Despite Election, Global Financial Crisis, Everything Stable for Employers in Canada

by Brian Smeenk

Employers with operations in Canada may well ask: “What’s going on up there? What will Canada’s federal election mean for business? How is the world financial crisis playing out there?”

It would appear that the most accurate answer to these questions, at this time at least, would be a typically understated Canadian one: “Everything is stable.”

Canadian federal election
The federal election of October 14 produced no significant change. Prime Minister Harper’s minority Conservative party was reelected. Once again the Conservatives won’t hold a majority in Parliament. The Conservatives won 144 seats out of a total of 308. The next strongest party, the Liberals, won only 78 seats.

Although no single opposition party is strong, this means that the Harper Conservatives will need at least one other party to support them on any major votes in Parliament, including their next budget. The result is widely expected to be that Harper will need to do more consensus-seeking with the other parties than he has in the past. He will not be able to implement some of the more right-wing elements of his party’s platform.

This may be unfortunate for business, as Harper’s Conservative platform included significant tax cuts in coming years. But the bad economic news that keeps rolling in may not leave much room for tax cuts in any event.

Audio conference: Do’s and Don’ts for Operating in Canada in 2009

Financial crisis
Canada has not been immune from the world financial crisis. But it seems fair to say that so far Canada is relatively unscathed. No Canadian banks have fallen off the financial cliff. None are even teetering. They are said to be among the best capitalized and most stable banks in the world. Similarly, Canada’ major insurance companies appear to be relatively sound and able to weather the current storm.

Nonetheless, the federal government and the Bank of Canada (roughly the equivalent of the Federal Reserve in the United States) have announced a series of measures to support the financial system, in concert with other Group of Seven countries. Interest rates were recently reduced. The central bank has announced a package of plans to increase the amount of cash available to lenders. These measures are part of Canada’s commitment to its G7 partners’ efforts to put billions of dollars of extra cash into the market to loosen credit conditions and restore lending.

The head of the Canadian Bankers’ Association, Nancy Hughes Anthony, was quoted on October 15 in a national newspaper, The Globe and Mail, as saying: “Canadian banks are still standing head and shoulders above others in terms of solvency and those kinds of issues, but the fact of the matter is you can’t have one jurisdiction just standing by while everybody else’s jurisdiction does things that are for the benefit of their financial institutions.” The intention of the government would appear to be to keep Canadian banks on a more or less level playing field with foreign bank competitors, in terms of the cost of funds and liquidity in the system.

What about the Canadian economy?
Major Canadian equity markets have plunged along with those in the United States and the rest of the world. But the other economic statistics we have, while they naturally lag behind current events, are surprisingly positive.

Here is a bit of an update on some of the statistics reported in Northern Exposure on September 23, 2008. Statistics Canada recently reported that the unemployment rate in September remained unchanged from earlier months, at 6.1 percent, a comparatively low level historically. The level of employment actually increased in September by 107,000, and this was matched by an increase in the labor force participation rate. Over the first nine months of 2008, employment has increased by 1.1 percent.

The agency also reports that Canada’s Gross Domestic Product increased through the first two quarters of 2008 by 5.4 percent. Business investment was up 6.5 percent and personal disposable income had increased a whopping 6.5 percent from the prior year. In August, Statistics Canada’s composite index of leading economic indicators was still positive (0.4 percent).

Despite this very positive economic performance so far this year, the consensus in the Canadian business community and business media is that Canada’s economy will follow the American economy downward.
World demand for Canada’s natural resources appears to be in decline. Prices for commodities are falling, along with the share prices of their producers. That will slow down the economy in Western Canada in particular. Demand in the United States for cars and other manufactured goods will hurt central Canada. On the other hand, the recent steep drop in the Canadian dollar against the U.S. dollar will help soften the landing for Canada’s manufacturers.

What this means for employers in Canada
On October 15 the Conference Board of Canada said at its annual business outlook briefing that its economists expect Canadian economic growth will be weak in many areas but that overall Gross Domestic Product will still increase next year. The Conference Board’s forecast is for GDP growth of 0.8 percent and employment growth of 0.7 percent in 2009.

What all of this spells for employers and employees alike is “uncertainty.” Canada’s government and financial system appear to be stable. But the financial systems elsewhere are not. And the outlook for the American and perhaps world economies is very pessimistic. This will in turn hurt employers in Canada.

In terms of the labor force, the very tight labor market -– especially in Western Canada — will slacken. Wage inflation in Alberta and British Columbia should slow. It will generally be easier to hire good employees, and turnover should decrease.

As indicated previously in Northern Exposure, there will be a real premium on an employer’s ability to be flexible. The ability to adjust the size or the focus of one’s workforce without incurring significant costs will be key. The ability to adjust employment contracts to meet significant changes in the business environment could be critical to survival. This will be true of nonunion employment contracts. It may be even more significant for collective agreements with unions.

Leave a Reply

Your email address will not be published. Required fields are marked *