 Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong
|  | Real estate numbers this week are expected to show a bad situation getting worse. (Sichon/Shutterstock) | | | We are going to get the latest Canadian real estate numbers this week. It's going to be a regular housing-palooza out there.
The stats kick off on Monday when the Canadian Real Estate Association releases the latest sales and price numbers.
We will also get housing starts (how many new construction projects have begun) and Statistics Canada's New Home Price Index.
The headlines are going to be ugly.
Well, let me rephrase that: the headlines in Toronto and Vancouver are going to be very ugly.
But in much of the rest of the country, the housing market doesn't look so bad. Indeed, the national numbers will make those regional numbers look a touch better than they are.
But make no mistake: Canada's biggest housing market is in real trouble. So I called up one of my favourite experts, Ron Butler, mortgage broker and host of the Angry Mortgage Podcast.
"The issues going on in Ontario are almost biblical," he told me.
He says a crash is coming. Something, he thinks, that will be worse than what was seen in 2008.
"We’re looking back all the way to 1990, a true bubble collapse in 1990, that lasted for six years and on an inflation-adjusted basis, prices did not return to 1990 levels for 13 to 14 years," he said.
At the heart of this lies a simply unbelievable build-up of tiny condos that are pouring into the market. The problem is suddenly no one wants to buy a 500-square-foot condo for more than $1 million. | | |  | | | | | Butler says this is the highest level of inventory on record. He adds that a ton of purpose-built rental projects are nearing completion as well. That's driving down rents.
That means the investors buying those condos at exorbitant prices can't even come close to renting them for enough to cover their costs.
He says even if interest rates keep falling and the market stabilizes, there are corners of the condo market that are in long-term trouble.
"That's just got to clean itself out through pain for the next five years," he said. Just to close the loop on this, Butler says the real value of one of those condos is probably somewhere around $290,000 instead of $1 million.
Now, you may (rightly) say, "I don't live in the GTA, why should I care?" You may even feel shivers of excitement that a housing market correction will bring down prices so you can finally afford to get into the market.
But a collapse in the real estate industry in Canada's biggest city will have a very real impact on the rest of the economy.
The housing market has always played an oversized role in Canadian GDP growth. At its peak, the housing market contributed approximately $267 billion from July 2022 to July 2023.
As a share of the GDP, that accounted for almost half of Canada's GDP growth in the first quarter of 2022.
Think of all the sectors that are part of that: construction, financial services, legal services.
If the market is seizing up, so is all that economic activity. And as we have discussed at length in these pages, it's not like Canada's economy has a lot of cushion right now. |  | | | All this puts an extra focus on the work being done in Kananaskis, Alta., this week. The G7 is turning into the G20. The trade talks between the Canadian and American delegations appear to be heating up.
The inter-provincial trade barriers are coming down (see below).
There are ways to boost growth. But we had better get on it fast, as one of the bigger drivers of growth for the last 30 years is flashing giant red warning signs.
What do you think will happen? Email me at peterarmstrong@cbc.ca
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forwarded to you. | | |  | | The Canadian Real Estate Association will release national home sales numbers on Monday. The national figures shouldn't be too bad, but the regional numbers, especially in Ontario, are going to be rough. | | | | | | The U.S. Federal Reserve will meet this week. The decision on interest rates will come on Wednesday. Economists believe the Fed will leave rates unchanged. | | | | | | We will get retail sales figures from Statistics Canada on Friday. So far, in spite of the trade war and all the uncertainty, the Canadian consumer has continued to spend at a modest pace. | | | | | Three things to read, watch and listen to this week | | |  | What are the potential benefits of opening trade across Canada? (Everyonephoto Studio/Shutterstock) | | | 1. Is Canada the safest port in a global trade storm? | | | If there is one thing you click on in this newsletter, make it this piece.
RBC's chief economist Frances Donald and the economics team's associate chief economist Nathan Janzen offer up a clear and sharp reality check on where we are in this moment of global turmoil.
Not that long ago, it felt like Canada was alone on an island facing off against the United States.
Every day there was a new iteration of a broader threat. Trump didn't want to buy our products, he thought the country only worked as a state, he imposed tariffs on all Canadian goods entering the United States.
The whole thing outraged Canadians. And it imposed a very real existential threat to the Canadian economy.
Since then, Canada has negotiated some tariffs down and pushed others off the table. Since April 2, the rest of the world has been dragged into the trade war and Canada is no longer alone.
With that in mind, Donald and Janzen ask the right question: what is the actual threat level today?
"While Canada's economic path forward remains challenging, it appears considerably less treacherous than it did just a few months ago — a narrative that has yet to permeate the Canadian psyche," they write.
They then lays out five recent developments on the economic landscape that have been more positive than many had anticipated.
1. Canada is now better off than almost any other trading partner.
"Canada has swung from being firmly in the focus of U.S. trade ire in February and March to having the lowest U.S. tariff rate of any major trading partner in April," wrote the economists.
Indeed, RBC calculated that 86 per cent of Canadian exports to the U.S. last year would still be duty-free under current rules.
"The average effective tariff on U.S. imports from Canada was 2.3 per cent — up significantly from essentially zero in January —but the lowest of any major U.S. trade partner," they wrote.
2. The economy remains relatively strong.
There's a divergence between the "hard" and "soft" economic data. Soft data, like consumer sentiment surveys, have shown a sharp dropoff in confidence as the trade war rolled on.
"But actual spending data has not matched that scale of weakness," wrote Donald and Janzen.
The unemployment rate has ticked up, but Donald points out that job postings have shown signs of stabilization in May.
3. The Bank of Canada has room to cut rates if it needs to.
The central bank moved aggressively to cut rates last year. But it's held steady for three meetings in a row now. If the economic picture erodes, the bank has options.
4. The government has fiscal wiggle room.
No one wants to see government debt get any worse. But when compared to any other G20 nation, Canada's finances look pretty good.
"This fiscal room provides an important backstop for the economy that shouldn't be
underestimated, particularly compared to its global peers (and the U.S.)," wrote the RBC team.
5. U.S. growth is good news for Canadian growth.
The on-again, off-again tariffs and the uncertainty involved in the trade war are bad for growth and bad for investment.
But the fact that the American economy is still chugging along is good news for Canadian growth.
"The de-escalation of U.S. tariffs support a slow but resilient outlook for the U.S., improving Canada’s prospects as well," they conclude.
The piece doesn't minimize the impact of the trade war. We know what the uncertainty is already doing. But we also need to work with the most recent sense of what's actually happening.
And while any trade war is bad, Donald and Janzen make a good argument that Canada is the safest port in a global trade storm.
Read the RBC report on the state of the economy here.
Read my article on how Canada emerged as the safest port in a storm of global trade | | | 2. Can we really count on an $800-billion boost through inter-provincial trade? | | | There is an excellent new episode of the Wonk podcast from the Public Policy Forum. Click here to hear it.
The show is hosted by my old colleague Amanda Lang, from whom I learned just about everything I know about the economy. Her guest is the always excellent Trevor Tombe, a professor at the school of public policy at the University of Calgary and a PPF Fellow. But mostly, he's the go-to guy for questions about inter-provincial trade barriers.
Their conversation starts with a pretty simply question.
If the provinces and territories actually succeed in getting rid of all the inter-Canadian barriers to trade, could we really expect to see an increase to the Canadian economy to the tune of $800 billion?
It's an eye-popping number. But Tombe says it's legit.
"It's a credible number, but, full transparency, it is the higher end of a range of estimates we put out," Tombe told Lang.
But that gain won't come overnight.
"I think the right timeframe that we should have in mind for the full gains to be realized is on the order of decades," he said.
The interview delves into the weeds and finds some absolutely crucial points that aren't being discussed as often. For example, Lang asks what, specifically, we are talking about when we talk about trade barriers.
"They aren’t tariffs and often they aren’t even explicit barriers to trade. It's just that the rules differ from one province to the next, for health and safety, for different product standards, for professional credentials," said Tombe.
You can see how different standards can make trade more expensive, if you need to have products inspected multiple times or meet different specifications in different jurisdictions.
But the professional credentials are the big one.
About 60 per cent of what we trade between provinces and territories is services trade.
"And the barriers in services are largely around the credentials that govern the service providers. The engineering firms, professional services, financial, legal advisory services," said Tombe.
For years, the efforts to eliminate these barriers was focused on harmonizing those credentials and standards. But in this iteration, the provinces are pushing to simply recognize the rules of another jurisdiction as valid in their own.
Tombe points to a recent deal between Nova Scotia and Alberta.
"Requirements there are that you're in good standing in the other province," he said. "And that you have appropriate liability insurance and that's it — no additional examinations, no exorbitant fees, no long delays."
If the rest of the provinces follow suit, that could be a game-changer.
The whole podcast is a great listen. Amanda Lang is an amazing interviewer — she's smart and engaged and steers the conversation into all the dusty corners of this topic I was hoping for.
Listen to the Wonk podcast here.
Watch the interview on YouTube here. | | | 3. Can Michael Sabia execute the government's game plan? | | | The appointment of a new head of the Privy Council Office in Ottawa is usually the stuff of inside baseball.
It becomes the subject of intense chatter in the bars surrounding Parliament Hill, but almost never moves out of that bubble and into the real world.
Last week's appointment of Michael Sabia broke through, though.
Sabia is well-known in both the public and private sectors. He was most recently the CEO of Hydro-Québec.
The announcement was heralded by many on every side of the political debate.
Lisa MacCormack Raitt, a former Conservative cabinet minister, took to her social media account to distinguish why his appointment matters.
"Everyone, buckle up. Status quo is no longer an option," she posted on X.
That's a pretty good summation of the consensus view. Sabia has been brought in to get things done.
The defining characteristic of the last 10 years of government has been the inability to get things done.
So there's no question Prime Minister Mark Carney needs some help to break the status quo.
The question is whether Michael Sabia is the right person for that job.
Yes, many of the smartest people in Ottawa have said he is. But one of the sharpest analysts of what goes on in Ottawa begs to differ.
Paul Wells wrote a must-read piece on his Substack outlining the many ways in which Sabia has been a fundamental part of that inability to get things done.
Wells will walk you through Sabia's involvement in the creation of the Canada Infrastructure Bank and his role in the Canada Digital Adoption Program.
"A lot of what Mark Carney apologized for, and ran against, as a change-from-Trudeau agent this year, are things Chrystia Freeland and Michael Sabia developed and announced as the minister and deputy minister of finance from 2020 to 2023," wrote Wells.
He builds his case that Sabia's fingerprints are all over some of the biggest failures of the last government. Once warmed up, he finishes with this:
"Lisa Raitt responded to the news of Sabia’s new gig by writing 'Status quo is no longer an option.' But for a decade now in Ottawa, letting Michael Sabia describe a glorious future that never arrives has been the status quo," Wells wrote.
Like I say, plenty of smart people are convinced Sabia is the right man in the right moment. And maybe he is.
But I think Wells's piece is an important counterpoint to the excitement.
Read Paul Wells Substack post here. | | | How the economy looks beyond Bay Street | | | Manufacturing falls by the most since 2023 | | | Last week, we were talking about the state of Canada’s manufacturing sector.
The numbers released were expected to show some of the first hard data measuring the impact of the trade wars.
And they did exactly as expected.
"Total manufacturing sales declined 2.8 per cent to $69.6 billion in April, the largest month-over-month decrease since October 2023 and the lowest level since January 2022," wrote Statistics Canada. | | |  | The dropoff was driven by lower sales of petroleum and coal products, which fell by 10.9 per cent and motor vehicles, which were down 8.3 per cent.
StatsCan says it found firms are struggling in the face of the tariffs.
"According to data collected from manufacturing establishments for April, approximately half of manufacturers reported being affected by the tariffs through various channels," wrote StatsCan.
Sales decreased in eight provinces in April, but not surprisingly, the decline in manufacturing was most concentrated in Ontario.
"In Ontario, manufacturing sales declined 2.4 per cent to $31 billion in April, the largest decrease in dollars since March 2024," wrote the team.
What do you think?
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