Recent data paints a complex picture of the global and North American economies.
Slow Down in The U.S Market
After contracting in the first quarter of 2025, U.S. real GDP grew at an annualized rate of 3.8% in the second quarter, largely due to reduced imports and an uptick in consumer spending. While the job market shows early signs of softening and inflation is accelerating again, the U.S. economy continues to rebound from its earlier slowdown.
However, those familiar with business cycles know that consumer price inflation often precedes economic deflation. When inflation rises globally, it typically signals an upcoming slowdown. During such times, investors and institutions tend to hoard U.S. dollars, viewing them as a safe haven — a trend that historically benefits the U.S. relative to other economies.
Perpetual Rising Public Sector Costs for an Unproductive workforce
In Canada, past policy decisions have left the nation particularly vulnerable to such global shifts. During the Stephen Harper era, when the U.S. economy weakened, capital inflows into Canada’s subsidized housing market temporarily strengthened the Canadian dollar — a rise later offset by interventions from Harper’s government and then–Bank of Canada Governor Stephen Poloz. Artificially weakening the loonie paved the way for Justin Trudeau’s argument that “with low interest rates, it’s time to run record deficits.”
Trudeau’s subsequent fiscal policies — marked by large deficits, carbon taxes, and heavy regulation — made it harder for Canada’s private sector to grow, discouraging investment and driving capital abroad. Compounding this are provincial and municipal taxes, regulations, and price controls that continue to make Canada an unattractive destination for both domestic and international capital.
Public Servant Pensions indexed to Inflation
Meanwhile, inflation persists across Canada, driven partly by public-sector entitlements and defined-benefit pension obligations, which expand automatically with inflation. Many of these liabilities, tied to government spending rather than productivity, risk further money printing to cover shortfalls — all while most Canadian governments remain in cash-flow negative positions.
Although the U.S. also faces fiscal strain, its debt remains more transparent and globally accepted, supported by its military and treasury markets.
Should capital begin fleeing Canada, the Bank of Canada may face pressure to raise interest rates, even amid domestic weakness. With no major political party proposing austerity or fiscal restraint, and multiple public sector unions already on strike, the nation’s challenges could deepen further.
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