Canada has continued to secure itself as one of the world's most robust economies. We have seen the country's economy get stronger over the past few years through diverse exports and industries. But, with an impending recession, investors have important concerns.
Let's look at the country's top economic concerns of Canadian investors and what citizens and investors can expect from the country's economy in 2023 and beyond.
Falling Home Prices
For many investors, real estate is a sound addition to their portfolios. While this may continue to be the case in the long run, we are currently seeing home prices decline due to various factors in the Canadian economy. According to PIMCO, home prices are now down about 9% from their previous highs in Canada (through September 2021). They also highlight that "interest rates and home prices are both direct inputs into the inflation basket in Canada." For comparison, in the U.S., home prices have fallen about 3%.
Interestingly, one of the reasons for this drop may be Canada's unique mortgage market. In Canada, mortgages are much shorter, typically five years, versus 30 years in the U.S. This means that Canadians may not have as much discretionary income to spend on real estate. In addition, the Bank of Canada continues to hike interest rates, making buying a home in Canada even more difficult. In January 2023, the Bank of Canada raised its benchmark interest rate to 4.5%.1
The Falling Dollar
In addition to falling home prices, the Canadian dollar is also falling after hitting a high, which will impact investors. In early February 2022, the Canadian dollar weakened against its U.S. counterpart, pulling back from its highest level in 2.5 months. If the Canadian dollar continues to fall, Canada could face a devaluation of exports. But the data is still new, and it's hard to predict what the Canadian dollar will do.2,3
Labor Shortages & Rising Unemployment
Finally, Canada struggles with labor shortages, especially in high-contact sectors, such as hospitality and food services. Canada is seeing rising unemployment levels, and these changes are predicted to continue. The unemployment rate has increased from 5.4% to 5.7% from 2022 to 2023 and is predicted to hit 6% in 2024. This volatile labor market can impact everything from the cost of goods and services to household income and saving ratios for Canadians.4,5
What Can Canadian Investors Do?
Investing can feel bleak to many, with all this talk about recessions, unemployment, and interest rates. But the good news is that it's not all doom and gloom, and there are some things Canadian investors can do to stay the course.
The most important thing Canadian investors can do is remember their long-term investment goals. While today's market might be volatile with these economic concerns, as long as your portfolio is set up for long-term growth and aligned with your goals, you shouldn't concern yourself with the day-to-day changes in the market.
Another important thing to do is trust the advice of your financial professionals. Talk to your advisor to ensure your portfolio is aligned with your risk tolerance, time horizon, and goals.
A new year brings new economic concerns, but by staying the course and focusing on your goals, you can rise above the noise and stress of an ever-changing market.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.