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The Trudeau government has weathered scandals and missteps, but nothing has weakened its support quite like high inflation
Publication date:
07/04/2022 • 45 minutes ago • 3 minutes read • 13 comments Justin Trudeau’s Liberals are trailing a Conservative party that doesn’t even have a permanent leader in most opinion polls. Photo by Benoit Tessier/Reuters/File
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In March 1991, after the decisive victory in the first Gulf War, 90 percent of Americans approved of then-President George HW Bush’s work.
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Eighteen months later, with the US recession, 64 percent disapproved of his government.
In November 1992, Bill Clinton was elected the 42nd President of the United States with the unofficial slogan “It’s the economy, stupid”.
As one of America’s Founding Fathers, Benjamin Franklin, put it, “When men are busy, they are happiest.”
The same immutable law governs politics in Canada.
The Trudeau government has weathered scandals and missteps, but nothing has weakened its support quite like high inflation.
The Liberals are trailing a Conservative party that has not yet elected a permanent leader in most opinion polls.
For Liberals, things are likely to get worse before they get better.
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David Rosenberg: The stock market is signaling that a recession is coming
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John Ivison: Freeland’s magic spending won’t make inflation go away
Canadians have yet to grasp the full extent of the macroeconomic misery that awaits them as another recession looms – one that would add higher unemployment to the mix and make conservatives frown while secretly rubbing their hands.
The Bank of Canada released its Consumer Sentiment Survey on Monday, suggesting that more people are concerned about inflation than in the first quarter of the year.
More Canadians believe inflation will remain high for longer, while fewer expect wage increases to keep pace with prices.
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According to the survey, there is a growing number blaming high government spending for inflation (suggesting that Pierre Poilievre’s ‘Justinflation’ campaign is gaining traction), while confidence in the Bank of Canada is pushing inflation back towards the Bringing target of two percent fades .
While there are concerns about real wage growth and access to credit, confidence in labor market conditions and the broader economic environment is above historical averages, to the point where people are saying they intend to spend significantly more during the pandemic spend accumulated savings next 12 months. A rate hike or two could put those plans on hold, but there seems to be a rosier view of the bigger picture than the facts warrant.
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The debate among economists is whether Canada will slide into a recession. To some extent, recessions are psychological: if people are working and feeling safe, they will keep spending. But warning signs from around the world suggest Canada will struggle to pull itself out of a recession on exports. Russia’s invasion of Ukraine and China’s COVID lockdown are compounded by signs of a slowdown in the United States. The US has seen its steepest rise in real mortgage rates since 2010 and the housing market has plummeted.
In an article last week in the Financial Post, David Rosenberg and Brendan Livingstone noted that the S&P 500’s 24 percent drop from peak to bottom in just over five months is a reliable indicator of a recession — a 20 percent drop -Decline. Percent decline in this index in five months has estimated an absolute decline in economic activity 100 percent of the time since 1970 (five times out of five).
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At a conference in Calgary last week, former central bank governor Mark Carney said the risk of a US and global recession is “uncomfortably high,” although Canada is likely to do better than most other countries.
When I delved into such things, the canary in the recessionary coal mine was the Purchasing Managers’ Index, a harbinger of future production. It fell to 54.6 in June, just above the 50 level, which indicates growth.
A recession is not inevitable. The Bank of Canada’s Business Outlook Survey (also released on Monday) shows that work-related restrictions are contributing to inflation. A slowing economy could free up labor that could be absorbed elsewhere, alleviating some upward pressure on prices.
But recession or no recession, a period of high inflation, slow growth and rising unemployment looks likely – the government-wrecking stagflation.
In a speech last month, Treasury Secretary Chrystia Freeland boasted that “jobs are plentiful and business is booming”.
But the tide is receding and the liberals could end up en déshabillé and exposed.
• Email: [email protected].com | Twitter: Ivison J
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