A soft landing is when the government slows down economic activity without triggering a recession. This scenario is often described as a’soft landing’ because a recession typically follows two quarters of negative growth. However, a soft landing is far from a certainty, according to Canada’s finance minister. In the meantime, the government is prepared to take additional steps to address affordability and inflation concerns.
Deflation remains a major issue, and the Bank of Canada has begun working on bringing inflation back into the target range. But, Freeland and other officials have also promised to take the necessary steps to prevent the inflation from becoming entrenched. Canada’s economic system is already well-positioned to deal with any’soft landing’, but undermining these institutions is both irresponsible and economically illiterate.
The government has promised to double the number of new homes built over the next decade. However, the NDP and Conservatives have been pressing the government to implement measures to address inflation. However, NDP leader Jagmeet Singh said that such measures are too late and won’t do anything to help Canadians who are most vulnerable to the rising costs of living. The government’s policy of encouraging immigration is one such example. The government has encouraged immigration to Canada during the pandemic.
The bank of Canada is on an aggressive path of raising interest rates. The policy rate was raised by one and a half percentage points in March, and it’s signaled that it may raise rates by three quarter points in July. The rate hikes have slowed Canada’s economy, but the bank still stands ready to act more forcefully if the situation warrants it.
But while rates are on the rise, rents continue to rise. A one-bedroom unit in Toronto, Vancouver, or Halifax costs upwards of $2300 per month. The government’s response to this is to propose a GST rebate of $7. Meanwhile, the cost of living in Nunavut is only slightly worse. In addition, food insecurity is making a bad situation worse. The Liberals have failed to mention food insecurity in budget 2022. Many items arrive at the grocery store after they have expired.
While the central bank is worried about house prices rising faster than incomes, the Bank of Canada’s governor Stephen Poloz insists that the worst won’t happen. According to the Bank of Canada’s senior deputy governor Carolyn Wilkins, a series of recent indicators support a soft landing. The slowdown in housing starts, cooling condo construction, and household debt ratios are all supportive of this scenario. Despite these problems, the government’s actions could prevent a recession and spark widespread unemployment. A crash would dampen growth and slash demand for Canadian resource exports.