2023-09-27 19:47:25
(Montreal) In the midst of a surge in the cost of living, the salaries of Quebecers have been increasing more slowly than those of Ontarians in recent months, in a context of economic uncertainty.
The moving average salary increase between May and August is 3.5% in Quebec. The pace is 4.9% in Ontario, according to data provided by the chief economist of Desjardins Group, Jimmy Jean.
PHOTO ALAIN ROBERGE, LA PRESSE ARCHIVES
Jimmy Jean, chief economist of Mouvement Desjardins
This figure reflects the cooling of the job market while job creation has “stagnant” in Quebec since the start of the year and the number of vacant positions is decreasing, explains the economist in an interview on Wednesday on the sidelines. a presentation on Desjardins Group’s economic forecasts.
Ontario is also experiencing a lull in the job market, but the trend is less pronounced than in Quebec. “Economic vigor is much more depressed in Quebec than in Ontario,” says Mr. Jean.
Median income is an important element in the Legault government’s objective of reducing the wealth gap with Ontario.
The recent deceleration in wage growth is a cyclical trend, nuances the chief economist. “I expect that we will experience a certain slowdown in Ontario at this level. »
Despite everything, significant challenges complicate Prime Minister François Legault’s objective. “It cannot be denied that the power of attracting high-talented individuals abroad is much stronger in Ontario than it is in Quebec. »
Quebec has industrial clusters that attract highly paid professionals, but it remains difficult to compete with Ontario, which hosts the head offices of many large Canadian companies. “It’s the hub of head offices in Canada, with very well-paying jobs. »
We will have to redouble our efforts to be able to compete with Ontario in terms of wealth creation and also in attracting high-income talent.
Jimmy Jean
Rates that hurt
The effect of the increase in interest rates is only just beginning, in particular because there are still households who have not yet renewed their term, underlines Mr. Jean. “We have barely entered the zone of maximum effect. At the start of the month, it had been 18 months since the first rate hike. We know that 18 to 24 months is the zone of maximum effect. The bulk of the effect is still ahead of us. »
The Canadian economy experienced a negative fourth quarter of 2022 and a negative second quarter of 2023. As these are not two consecutive declines, the technical definition of a recession is not met, “but two of the last three quarters are negative”.
Mr. Jean anticipates that the Canadian economy will be in recession during the first half of the year.
The increase in rates considerably eats into the budgets of owners who renew the term of their mortgage loan, adds the economist.
A household that renews a five-year fixed-rate term for the first time in January 2026 will see its monthly payment increase by 29%, according to forecasts from the Desjardins Group team of economists.
The effect will be even greater for first-time buyers who had a variable rate and who would not have increased their payment. If they renewed “as we speak,” their payment would increase by 35%.
“With the key rate that we forecast, we would be talking regarding 40% in 2025-2026. However, if we applied the scenario that the markets are currently anticipating, that is to say almost no cuts in the key rate, we would be talking regarding a 60% increase in the payment. […] This is extremely detrimental from an economic point of view. »
Mr. Jean predicts that the Bank of Canada’s key rate will remain stable until a first rate cut in April. “At the end of 2024, we should be at 3.5% interest rate (the key rate has been at 5% since July 12). »
The economist believes that it is possible that Canadian banks will lower their rates in anticipation towards the end of the year or at the beginning of 2024. “The potential for further increase, in our opinion, is relatively limited. We are at a 15-year high for real rates. »
“It won’t be a huge reprieve,” he warns. Normally, rates go up in stairs and down in an elevator. There, they will fall in steps, unfortunately, because we do not think that inflation will return to the target of 2% before 2025.”
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