Job losses will rise but won’t reach levels seen in past economic downturns: BoC

Unemployment will rise as a potential recession looms, but Bank of Canada Governor Tiff Maclean said job losses won’t drop to levels seen in past recessions.

Canada’s job market remains strong despite growing forecasts that an economic slowdown is imminent.

“We don’t expect unemployment to increase as much as it has in past recessions,” Macklem said Thursday in front of students and researchers at the City University of Toronto. “By historical standards, we don’t expect unemployment to be very high.”

The governor said the country’s current low unemployment rate is unsustainable and has contributed to decades of high inflation.

The Canadian labor market needs to be rebalanced to stabilize inflation, he said.

The country’s unemployment rate held steady at 5.2 per cent last month as the Canadian economy surprised forecasters by adding more than 100,000 jobs. The strong jobs numbers came after four months of losses or lackluster job growth.

Businesses that struggle to find workers can’t keep up with demand for goods and services in the economy, Macklem said.

“The tightness in the labor market is a symptom of the general imbalance between supply and demand that is fueling inflation and hurting all Canadians,” he said.

Part of the imbalance, he said, was due to an ageing population that increased retirement levels and a decline in immigration during the pandemic.

A slowdown is necessary to bring demand and supply back in line, Macklem said.

“So what does this mean for Canadian workers? Well, obviously, the adjustment is not without pain,” he said.

In response to the recent strong employment report from Statistics Canada, Macklem said fluctuations in monthly payrolls are not uncommon. “

“My conclusion from the past few months is that our economy continues to be in a state of excess demand.”

In his speech, the governor said policies to increase the number of available workers would help ease inflation, noting that immigration was one of them.

He said other policies, such as expanding universal childcare, would help increase the proportion of women in the workforce, but noted it would take time.

However, the governor stressed that these policies are no substitute for using interest rates to curb high inflation.

“New workers will receive new income, which will increase economic spending,” Macklem said. “That’s why increasing supply, while valuable, is not a substitute for using monetary policy.”

Last month, the Bank of Canada raised its key interest rate for the sixth time in a row this year. The central bank has signaled that one of the fastest rate hike cycles in its history is coming to an end.

Economists expect one or two more rate hikes.

The rate hike comes in response to inflation hitting its highest level in nearly four years. Inflation was 6.9% in September, well above the central bank’s 2% target. It has been declining steadily since hitting a high of 8.1% in June.

Statistics Canada is expected to release its latest consumer price index report on Wednesday, revealing the evolution of inflation in October.

Macklem said the central bank will pay particular attention to core measures of inflation, which tend to be less volatile than headline figures.

Nojoud Al Mallees, Canadian Press

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