Canada’s economy is on life support: economist

David Rosenberg, founder of Rosenberg Research, joins BNN Bloomberg to discuss Canada’s labour market and real GDP.

Canada’s economy is on life support, the nation is in a clear recession watch, and the Bank of Canada needs to cut interest rates further, says an economist.

A new report from Rosenberg Research, Canadian Economy on Life Support, shows that despite interest rate cuts from a high of five per cent in 2024, per capita GDP is still falling, and the economy is growing at only one per cent annually.

Moreover, the housing and manufacturing sectors are struggling with home prices down two per cent year-over-year. Manufacturing, which heavily relies on U.S. trade, is down five percent.

“It’s clear to me, unless the policy lags are just a lot longer this time around, that this is what 275 basis points of bank Canada rate cuts delivers: the grand total of one per cent growth economy,” David Rosenberg, chief economist and founder of Rosenberg Research, told BNN Bloomberg.

“The next question is, is that all you get?”

The report states that the economy is expected to shrink in the fourth quarter, falling by an annualized 0.5 per cent quarter-over-quarter. This is lower than the Bank of Canada’s forecast of 0.0 per cent.

Because the economy has contracted in two of the last three quarters, it is officially on recession watch for 2026, it says.

“Inflation is not really an issue”

Rosenberg said the economy is growing below potential, and the Bank of Canada’s own forecast is for the disinflationary output gap to persist until the end of 2027.

“Inflation in this country is not really an issue. Virtually every underlying inflation measure is comforted within the Bank of Canada’s comfort zone,” said Rosenberg.

He believes the Bank of Canada will be compelled to cut rates further from its already egregiously low interest rate of 2.25 per cent, and the Canadian dollar is going to come under some downward pressure.

Residential construction flat as a beaver tail

Monthly data shows Canada’s GDP is running at roughly one per cent in the fourth quarter.

Rosenberg said while many economists seem to think fiscal stimulus will help the economy, slow growth in some sectors suggest otherwise.

“If you look over the past year, residential construction expenditures are flat as a beaver tail,” said Rosenberg,”

He said the general consensus has been that the Bank of Canada’s rate cuts would reignite rounds of housing inflation.

“None of that has happened. In fact, home prices in Canada nationwide have either been flat or negative sequentially for 10 months in a row, and are running negative two per cent year-over-year,” said Rosenberg.

Trade relations with the U.S.

Up until recently, there was hope that Canada’s relationship with the U.S. improves, said Rosenberg.

“Well, of course, we’re going to throw that in the waste paper basket right now,” he said.

Even with a competitive exchange rate and red hot U.S. economic growth, manufacturing is down five per cent.

“When you adjust for whatever inflation there is at the retail level, there’s practically no growth there either.” said Rosenberg.

“You want to be bullish on the Canadian dollar”

Rosenberg said as weak as the Canadian dollar has been up until recently, it’s probably not weak enough.

“You want to be bullish on the Canadian dollar, you have to start seeing real positive thrust in the areas of the economy that are most sensitive to the currency,” said Rosenberg,

“It’s just not happening, and that’s a huge disappointment.”

Canada should compare its currency to Australia and New Zealand

The broad based debasement trade in the U.S. dollar directly affects Canadian currency, said Rosenberg.

Canadians should measure their currency with the Australian dollar and the New Zealand dollar because “those are our commodity-oriented brethren,’ he said.

Compared to those currencies in the past two months, the Canadian dollar has already dropped more than four per cent.

“It’s telling you that they have higher interest rates because they have stronger internal demand,” said Rosenberg.

He said ultimately Canadians need to ask themselves if they believe Canada’s interest rate hold is working, why are the most credit sensitive sectors like housing, construction and retail trade stagnating or declining?

“That’s telling me that as much as the BoC has done, they haven’t done enough just yet,” said Rosenberg.