As omicron piles on economic fears, Canadian outlook offers glimmer of bland optimism

Headlines that make the heart race may be good for the news business, but they aren't so hot for economic stability.

Amidst a fireworks display of breaking stories that include warnings of a new and potentially worse COVID-19 variant of concern, Friday's stock market tumble, worrying inflation updates and a new round of supply chain problems caused by B.C.'s flooding, data out this week on the Canadian economy is expected to be reassuringly bland.

And after a weekend of hand-wringing, there are increasing signs — at least in financial circles — that despite a name that sounds like a Marvel Comics villain, the omicron variant is just more of the same.

Stocks and oil rebound

"Investors [are] betting that the impact of the omicron COVID-19 variant will be less profound than initially feared," the Wall Street Journal reported Monday, as stocks and oil rebounded from "their largest one-day percentage decline since April 2020."

Of course, there remains plenty to learn about the latest coronavirus variant and its impact on the Canadian economy, but a new stream of business news out this week — including the country's growth rate, unemployment figures and the state of Canada's banks — is expected to be reassuring.

While Canadian inflation hovering near five per cent remains a worry, new data for gross domestic product, out later this morning, is not expected to show the kind of economic growth that would set inflation soaring.

Instead, economists assess that the data from July to September will show the economy grew at an annualized rate of 3.2 per cent. If that's the way things turn out, it will be a sharp bounce-back from an economy that shrank in the second quarter.

While that is healthy growth for an advanced economy, it is also bland enough to avoid sparking new inflationary fears. 

As Bank of Montreal economist Doug Porter said in a report to investors earlier this month: "Given the wildness of the prior 18 months, no one is complaining about ho-hum."

When Statistics Canada released its data on Tuesday morning, it was not so ho-hum as had been predicted — with an annualized growth rate of 5.4 per cent.

Meanwhile, BMO's results will be out Friday, at the end of a series of bank-profit numbers that begin Tuesday with the Bank of Nova Scotia. Despite all the gloomy economic headlines, Reuters is predicting a boost in dividends, saying Canadian banks, as a group, are "set to post strong results."

Optimism on the upswing

Lower down the financial food chain, the Canadian Federation of Independent Business has released a moderately optimistic outlook in its monthly Business Barometer. 

Small business owners are a bit like Canadian farmers, who will never admit to things being absolutely good; so a CFIB release that says, "Overall, small business optimism is on an upswing," sounds positively buoyant. 

Among the CFIB report's reservations are that its optimism index has not gained back September's losses and a growing expectation of sharply rising prices and higher wages in coming months.

WATCH | Rising food prices a major contributor to Canada's inflation rate:

Rising food prices contribute to 18-year high inflation

3 years ago

Duration 2:29

The continued increase in food prices is a major contributor to Canada’s inflation rate reaching an 18-year high and some economists say the rising costs could last longer than initially thought.

"We have never observed price and wage increase plans at this level in the monthly barometer's 12-year history," said Andreea Bourgeois, a senior research analyst at CFIB.

"Price increase plans over the next 12 months reached 4.3 per cent in November, while wage plans reached 3.1 per cent, a 0.6 percentage point increase since last month and the highest level recorded since CFIB started publishing its monthly Business Barometer in 2009," said the CFIB summary of its report.

Goldilocks growth

While high, those expectations indicate small business is following — not leading — inflation that hit 4.7 per cent last month.

Something else economy-watchers will pay close attention to this week will be November auto sales figures, which come out on the first of the month — a fresh indicator of the extent to which seasonally adjusted vehicle purchases are improving or worsening, as supply chain problems work their way through the economy.

"We can't go back and change what's happened," said Bank of Canada governor Tiff Macklem on Monday, speaking at the bank's Symposium on Indigenous Economies. "But we can try to correct some of the consequences that arose from ugly periods in our past."

Macklem was of course referring to Canada's notorious historic treatment of Indigenous people. 

But in a very different context, that is what the country's top central banker has said he would like to see in economic and jobs growth, too. And Macklem wants it to be not too fast and not too slow.

Currently, that is exactly what Canadian economists are forecasting for Friday's jobs numbers. They estimate that the economy will crank out between 30,000 and 40,000 jobs, ticking the unemployment rate down another point to 6.6 per cent.

As in the story of Goldilocks and the Three Bears, that kind of unemployment growth is not too hot and not too cold — it's just right for an economy worried about inflation.

If that's the way it turns out, this week's economic figures could signal a fairy-tale ending for what has been another hectic year.

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