The Canadian economy: why is it in good shape?

The Canadian economy benefits from immigration, but what about the Quebec economy? Will the pandemic cause long-term changes? We talk about it with Sébastien Mc Mahon, our Chief Strategist and Senior Economist at iA Financial Group.

Ashleay: Welcome to the “In Your Interest!” podcast from iA Financial Group, where we discuss your need-to-know economic news and how it affects your finances. All this in under 10 minutes. In this episode, we'll talk about the Canadian economy. Maybe you'd like to know if the pandemic will have a long-term effect on your investments? My name is Ashleay. To answer this question, I'm here with my colleague, Sébastien Mc Mahon, Chief Strategist and Senior Economist at iA Financial Group. Hi, Sébastien.

Sébastien: Hello, Ashleay.

Ashleay: So, can you tell us why our Canadian economy is in good shape today?

Sébastien: Sure. Canada's economy is in good shape today. It's been pretty resilient over the last few decades and we're in a good spot today. So that's very, very good news. And Canada's economy, when I say it's resilient, it was, among the developed countries, one of the best performing economies through the financial crisis of 2008. It went well through the COVID crisis. And now we find ourselves in very, very good shape today. And, you know, as economists, we're always looking at multiple indicators and we're always digging into exactly what's going on. And we realized a few years ago that Canada's strongest tailwind is immigration. So, Economy 101 here, economic growth is explained mostly by two factors: the growth in the population and the growth in know-how or technology. So, of course, we have the same growth and know-how as every other country in the world. So, it's our immigration figure that is the key here. So, a few statistics that we see from OECD, from other global organizations, is that first, Canada's population is one of the strongest in the world because our growth comes mostly from immigration. And there's much more immigrants coming into Canada every year than newborns in the country. So, our growth is mostly through immigration. We know that we attract also the most highly educated immigrants. So when we look at the scolarity levels of the immigrants that come to Canada, we’re one of the highest among developed countries, so we're good at attracting highly scolarised immigrants and we are also, in the developed world, among the best at integrating immigrants into our society. So that means that after a few years, the immigrants that come here have jobs, have a home, they're homeowners, they have families, and they become Canadian. So, all of these elements taken together, that's really our secret to our success.

Ashleay: And as a result of the pandemic, are there any changes to note, like did COVID have an impact?

Sébastien: Of course, COVID had an impact everywhere. But I'd say that we came out of COVID pretty strong. Even when we compare to other countries like the US, we did the right things and there was many, many, many question marks about how to tackle the COVID crisis on the political side and the economic side. And no one had the answer. So, when COVID happened, some countries like the US, they decided to put more weight on sending cheques to households just to keep consumption going, keep the economy afloat. In Canada, we did some of that, of course, but we decided, well, the federal government decided, not economists like me, but decided that it was a good idea to keep the employment link between companies and workers. So, to subsidize wages, to subsidize rents, to make sure that when the economy would reopen, that the job that you left was still going to be there. Because if you're laid off temporarily, but temporarily becomes long term or definitive, then it's hard after that to reintegrate the labour market. So their response was the right one and we see that in the stats in mid 2022 because Canada was, among the developed countries, it was one of the fastest to regain the level of employment that it had pre-COVID and as of mid 2022 in the US they are not there yet, they're about to hit it. But in Canada we've been there for many months yet. And also, when we look at other statistics like the employment rate, we see that we're currently sitting at an all-time high. So, there has never been as many Canadians working as a share of the population. So, we have a very strong labour market. Maybe one last point. A Russian invasion of Ukraine is also helping the Canadian economy, of course, not something that we wish to see happen. But interestingly, the export mix that Canada has - so Canada exports a lot of natural resources and it just happens that we export a similar mix of natural resources to what Russia is exporting. So, the fact is that some business partners of Russia are backing up from buying from Russia and are turning towards Canada and the prices for these natural resources is also booming. So, this is really impacting Canadian businesses in a positive way.

Ashleay: Okay, so Canadian economy is doing well. Does that mean that you recommend investing only in Canada?

Sébastien: Well, not only, of course you need to diversify globally, but we do recommend looking at Canada very seriously for the next few years. We think the economic situation here is going to be good enough that investing in our industries will make a lot of sense. We look at the energy sector, which has been left aside for many years in Canada, Canadian one. So now we're starting to see lots of interest from global investors. So, we think it makes a lot of sense to invest locally or domestically over the next quarters and maybe even years. One other aspect is that the Canadian dollar right now remains pretty cheap. So that's a tailwind for the Canadian economy. And when you invest locally, you don't have to do any currency management. So, if you invest in foreign products in an environment where the Canadian dollar is getting stronger and stronger, then you have to do currency management. When you invest locally, you don't have to do that. So, it's another good point to invest locally.

Ashleay: Right. So, can we count on it going well and staying that way for a while?

Sébastien: We can't. We think it's going to be, Canada is going to be in good shape for a good, good while. Of course, it's not just, you know, a perfect picture. We need to look at the real estate sector. Of course, there's a strong link to make between real estate and demographics. So, we're pretty adamant that we don't see a housing bubble in Canada because when you have a housing bubble, that means that when it bursts, typically when a bubble bursts, you have a drawdown of about 70%. So, a typical bubble, you don't want to see that. And we do see some froth in the market, of course, but the market is sustained by demographics. So, there's the Toronto market, there's the Vancouver market, and there's kind of the rest of Canada market. So as long as the immigration and the demographic story remain strong, the immigrants, they tend to gravitate towards Toronto mostly, also Vancouver, they're spread out across the country. So, we could see small pullbacks in the market, but we think that the immigration story will sustain the housing market for a good while. So, we're not in the bubble, but we could see a decline in prices with the tightening of monetary policy, of course. And, as you know, the Bank of Canada and other central banks, they're in a rush to tighten their monetary policies. We're seeing many basis points of hikes since the beginning of the year. So, this is starting to have an impact on housing. So, we could see a decline, but we don't see, you know, a crashing down of the market.

Ashleay: Right. Right. And you mentioned basis points. Can you maybe elaborate on what that means?

Sébastien: Sure. Basis points is just the measure of interest rates. So, let’s make this clear. So one basis point is 0.01%. So if the central bank, the Bank of Canada, decides to take its leading rate from 1% to 2%, that's 1%, so that's 100 basis points. And typically, central banks, they tend to move in increments of 25 basis points, so 0.25%. So usually when they go from 1 to 2, it's going to be four decisions, four dates where they hike by 0.25% until they reach 2. But right now, economists like myself, we're urging central banks to hike as quickly as possible to get closer to something that's more neutral as an impact on the economy. So, we're seeing double hikes of 50 basis points, so 0.5% in each increment. So, we're seeing a pretty quick normalizing of the monetary policy. And again, of course, this will have an impact on housing, but we don't think it's going to burst a bubble.

Ashleay: Wow. Well, thanks again, Sébastien, once again. I think we all learned something new today.

Sébastien: Thank you.

Ashleay: Love this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast available on all platforms, visit the economic news page on or follow us on social media.


Sébastien has nearly 20 years of experience in the public and private sectors. In addition to his roles as Chief Strategist and Senior Economist, he is an iAGAM portfolio manager and a member of the firm’s Asset Allocation Committee. All of these roles allow him to put his passion for numbers, words, and communication to good use. Sébastien also acts as iA Financial Group’s spokesperson and guest speaker on economic and financial matters. Before joining iA in 2013, he held various economic roles at the Autorité des marchés financiers, Desjardins, and the Québec ministry of finance. He completed a master’s degree and doctoral studies in economics at Laval University and is a CFA charterholder.

Sébastien Mc Mahon

Vice-President, Asset Allocation, Chief Strategist, Senior Economist, and Portfolio Manager

This podcast should not be copied or reproduced. Opinions expressed in this podcast are based on actual market conditions and may change without prior warning. The aim is in no way to make investment recommendations. The forecasts given in this podcast do not guarantee returns and imply risks, uncertainty and assumptions. Although we are comfortable with these assumptions, there is no guarantee that they will be confirmed.

Share prices

2024-05-17 12:59 EDT
  • ^TSX $22,465.37 $165.54
  • $CADUSD $0.73 $0.00

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