With the golf season approaching, sooner in some parts of Canada than others, it’s tough to look past the rosy economic picture in this country, with strong employment growth, more business investment and inflation that’s under control.
For those very reasons, the Bank of Canada saw fit to raise interest rates for the third time since last summer, this time going up to 1.25 per cent from one per cent after hikes in July and September.
That, of course, means it just got a little more expensive to take out a business loan or use a line of credit. On the consumer side, the cost of mortgages, for example, just got a little more expensive.
When the Bank of Canada hiked interest rates back in July, we asked in the GNN Poll if that will affect spending on green fees, memberships, pro shop and food and beverage spending and other golf-related purchases.
Most respondents expected to feel the impact of the bank’s decision, with 54 per cent expecting a slight impact on spending, while 19 per cent said it would affect spending in a big way. On the other hand, 27 per cent said golf-related purchases wouldn’t be affected at all.
With two increases since that poll was taken, we’ll have to update that poll sometime soon and it will be interesting to see if rate hikes are expected to hit harder going into the 2018 golf season and whether the central bank will decide to continue the increases.
At least two more rate increases are expected this year, but that could be affected by a number of factors, including economic growth, which expected to slow significantly to 2.2 per cent this year and 1.6 per cent in 2019, compared to three per cent in 2017. While the central banks has factored that in, what if those numbers aren’t quite as expected?
The other wild card is the future of the North American Free Trade Act and American business tax cuts that make it attractive for companies to set up shop in the United States instead of Canada. All of that could have a major impact on the economy and jobs, but it’s too early to tell right now.
If interest rates do continue to climb, it could put the hit on business owners as they deal with increased costs brought about by carbon taxes, enhanced CPP and the eventual minimum wage hike to $15 an hour in Alberta and Ontario and likely to come in other provinces.
Whether the minimum wage hike brings about 50,000 job losses as warned by Ontario’s own Financial Accountability Office remains to be seen, but as this story in the Toronto Star indicates, it’s already having an effect on childcare costs with the minimum wage at $14, while prices could go up for goods and services across the board.
The effect of the minimum wage hike in Alberta is being downplayed in the opinion of some in the media, Tiffany Gordon, now at Heritage Pointe near Calgary, writes in a future blog that while the outcry isn’t as loud as in Ontario, people have simply gotten used to the idea, but that doesn’t mean people won’t lose jobs, have hours cut, or prices won’t go up.
Whatever way businesses go in dealing with the added cost of minimum wage hikes, it could have a negative effect on the economy. A recent Ipsos poll has one-third of Canadians saying they are no longer unable to cover their monthly bills and debt payments, with half saying they are within $200 of not being able to pay their bills.
We’ll discover in time how that will affect discretionary spending used for golf or how it will affect the overall economy. The same holds true for the effect of rising interest rates on people who bought in during the housing boom in urban centres such as Vancouver and Toronto.
All that glitters is not gold, which isn’t meant to put a damper on the recent good news for the Canadian economy. There are, however, a number of red flags out there to suggest that caution would be prudent.