The COVID-19 pandemic is no longer a global emergency, and Canada’s GDP in 2023 exceeded expectations. The economy seems to be heading towards a soft landing after a period of recession, with inflation decreasing and unemployment dropping to 5.7% in January 2024.
Despite these positive economic indicators, recent surveys show that Canadians are unhappy with the direction of the economy. 84% of Canadians believe the country is currently in a recession, and 73% expect one next year. Young people, in particular, fear for the future.
This discrepancy raises the question: Why are Canadians’ sentiments at odds with economic indicators? As economists, we have identified several reasons explaining this gap:
Growing Socio-Economic Divide
Income and wealth inequality are both increasing at an alarming rate in Canada. The wealthiest 20% now hold over two-thirds of the net worth, while the bottom 40% own just 2.7%.
The top 20% of income earners captured 40.3% of disposable income in 2023, while the bottom 20% only received 6.1%.
Conversely, the number of low-income individuals in the group continues to rise. Net savings for low-income households fell by 9.8% in Q3 2023 compared to the previous year.
Also read: The best banks for newcomers in Canada in 2024.
Debt Servicing Costs
Since the pandemic began, net savings for everyone except those with the highest incomes have worsened, as renters and low-income families tend to spend more than they earn on essentials.
Canada currently has the highest household debt-to-disposable income ratio among all G7 countries (Canada, France, Germany, Italy, Japan, the UK, and the USA). With current high-interest rates, the interest payment burden for households as a percentage of disposable income has recently reached a 12-year high.
Interest Rates
Average disposable income for the top 20% of Canadians is rising at the fastest rate among any income group. This means those with financial assets benefit from higher interest rates, while those at the bottom suffer from increased debt servicing costs.
Housing Costs
Skyrocketing housing prices have outpaced income, and mortgage rates have increased dramatically, leading to the lowest housing affordability index in 40 years. The dream of homeownership seems further away than ever for many.
Impact of Inflation
While Canada’s inflation rate shows signs of decreasing, it remains relatively high. In June 2022, it reached a 39-year high of 8.1%, hitting low-income groups the hardest.
Rising Corporate Concentration
Canada’s most concentrated industries have become even less competitive, and the number of highly concentrated industries is increasing. Profit margins and markups for profitable companies are rising.
This trend negatively impacts consumers and the broader society by reducing choices and increasing costs.
We are currently seeing this in the food sector, where a lack of competition has led to higher food prices. This is also why airline and mobile phone prices in Canada are higher than in similar countries.
Struggles with Mental Health
The proportion of people reporting very good or excellent mental health dropped from 72.4% in 2015 to 59% in 2021.
The prevalence of certain chronic diseases, including high blood pressure, heart disease, and obesity, has also increased from 2015 to 2021.
Financial anxiety, stress from the pandemic, and other issues are making Canadians angrier overall, affecting their outlook on life and the economy.
Also read: The best banks for newcomers in Canada in 2024.
Long COVID
While the pandemic’s impacts are waning, long COVID remains a significant issue for many. One in nine people who contracted COVID-19 suffer from symptoms like brain fog, cognitive impairment, fatigue, and shortness of breath, affecting their health and well-being.
It is shortsighted to assume we have all recovered equally from the pandemic, as some people are still affected by it.
Declining Higher Education Funding
Historically, university education has acted as the “great equalizer” and a tool for intergenerational social mobility. However, this is no longer the case with declining government support for post-secondary education.
The financial situation of many colleges is increasingly precarious, meaning higher education institutions may raise tuition fees or rely more on international students for funding, both of which impact domestic students.
Students from the lowest economic backgrounds will increasingly struggle to secure their financial futures after high school with the high costs of a university or college degree. This, in turn, reduces their chances of climbing the socio-economic ladder.
Also read: Can the excitement of Hamster Kombat lead to a spike in the game’s token price?
Youth Concerns
Young people across North America are more worried about their futures than previous generations, concerned about their mental health and educational prospects, and more disillusioned with politicians.
Generation Z, despite being resilient and pragmatic, is pessimistic about the world around them and the future ahead. They worry about their financial security with high rent and food costs.
Navigating the Disconnect
While over 40% of Canadians are hopeful for positive outcomes in 2024 and macroeconomic indicators suggest prosperity, several factors cause dissatisfaction among large segments of the Canadian population.
Executives, business leaders, policymakers, government officials, and economists all need to care deeply about this issue. Over-reliance on aggregate indicators – such as macroeconomic booms – when making strategic decisions, investments, hiring, and funding can lead to unexpected outcomes and challenges.
For example, a real estate company may decide to invest in a large, low-cost housing project based on economic numbers. While the initial logic may seem sound – if the economy is doing well, there should be high demand for housing – problems may arise if the target population is financially strained and unable to afford housing.
A comprehensive understanding of the mindset, risk preferences, and motivational factors of key customers, stakeholders, investors, employees, and voters is essential for making informed decisions that benefit all parties involved.
