Canada's economy is 'on life support': Rosenberg

A new report from Rosenberg Research uh

says that the Canadian economy is on

life support and that the economy

probably shrank in two of the past three

quarters and we are on a clear recession

watch for 2026.

Let's get more from David Rosenberg,

founder and president of Rosenberg

Research. David, thanks very much indeed

for joining us.

>> Great being with you, Andy. The Bank of

Canada has brought down interest rates

by almost three full percentage points

since 2024, but you reckon more is

needed?

>> Well, uh, the proof of the pudding is

always in the eating. So, uh, you know,

the bank has cut the policy rate, uh, by

275 basis points. Of course, uh, the

only people that borrow at the overnight

rate, uh, are the banks uh, and nobody

borrows at that rate. and uh other

interest rates haven't fallen nearly as

much.

>> When I see the the proof of the puddings

in the eating question is, you know,

since the Bank Canada started cutting

interest rates in the spring of 2024,

uh what's the Canadian economy done over

this time span? And it's barely better

than a 1% annualized growth performance.

And although the population trends have

slowed with the immigration rule

changes, real per capita GDP in Canada

uh is still declining. That has not been

arrested. Uh so yeah, I would completely

agree that the Bank Canada probably

never should have gone to 5% to begin

with. Um so we came off u rates that

were very elevated. Um, but it's clear

to me, unless the policy lags are just a

lot longer this time around, that if

this is what 275 basis points of Bank

Canada rate cuts delivers, the grand

total of a 1% growth economy,

>> uh, the next question is, uh, is that

all you get?

>> This is kind of reminds me of the

interest rate policy in the wake of the

2007208

banking crisis. low interest rates

didn't seem to stimulate growth then at

all.

>> Well, it's uh you know, Tiff Mlin wasn't

wrong that uh a lot of the call it

structural issues with the economy uh

are developments that transcend uh the

power of the central bank. But at the

same time, if I were in Ottawa and I

were in his shoes, uh I would be doing

all I possibly can. Uh inflation in this

country is not really an issue. uh

virtually every underlying inflation

measure is comfortably within the Bank

of Canada's comfort zone. Uh and the

economy is growing below potential uh

and the Bank Canada's own forecast when

you dig through the details is for this

disinflationary output gap to be with us

uh not just this year but through the

end of 2027.

So I'm a little surprised that um uh the

Bank Canada is taking such a stridident

approach. I do think that they will be

compelled uh to cut rates further even

from this egregiously low interest rate.

Um and uh I think the Canadian dollar

which I had been bullish on tactically

uh is going to come under some renewed

downward pressure at the same time

because there's a case to be made that

the Fed probably doesn't do uh anything

at all at least through the first half

of the year.

We have a chart from you guys just

showing real GDP year-over-year percent

change going back to 2022 and it shows a

relentless decline.

>> Yeah, we're we're running uh

>> in growth, I should say. Sorry, go on.

Sorry, David. Yes, go ahead.

>> Oh, yeah. We're, you know, we we got the

uh we got the monthly data um late last

week. uh the GDP trend is running at

roughly uh 1% uh the fourth quarter

sequentially as you mentioned uh in your

preliminary remarks is probably going to

be fractionally negative and I'm trying

to look around uh for you know what the

source of vitality is going to be. Uh

I'm really quite surprised that most

base street economists uh have an

inflation view or at least some of them

do. Uh and that everything's going to be

fine and dandy cuz we're going to get a

modest amount of fiscal stimulus. Uh I

think this is still very large the show

me situation. Uh I'm looking at just the

broad array of indicators and it's quite

striking. You know, you would think that

uh of all the sectors that would benefit

from what the Bank Canada's done, uh you

think it would be the housing sector,

but if you look over the past year,

residential construction expenditures

are are flat as a beaver tail.

>> Uh home prices, you know, everybody was

telling me back in the summer of 2024

when the bank kind of started to cut

interest rates, people were saying to

me, "Oh, just wait. they're going to

reignite um uh renewed rounds of housing

inflation.

>> Uh none of that has happened. Uh in

fact, uh home prices in Canada

nationwide have either been flat or

negative sequentially for 10 months in a

row and are running negative -2%

year-over-year. Uh and then you know we

were hoping up until recently that there

was some sort of daunt um with Donald

Trump that his relations with Mark

Carney we're starting to improve. Well

of course we can throw that in the in

the waste paper uh uh basket right now.

>> Uh but you know you're taking a look at

manufacturing activity in Canada.

>> Uh [clears throat] even with what would

be deemed a competitive exchange rate

and red-hot US economic growth that

you'd think would be pulling in Canadian

shipments. Um, manufacturing

is actually down 5% year-over-year.

Like, you're talking about a recession.

Well, you have a recession already in

the manufacturing sector. And there's uh

no real thrust in terms of retail sales

when you adjust for whatever inflation

there is at the retail level. Um,

there's practically no growth there

either. And that of course is very

interestensitive. So it comes back down

to you know your view on the Canadian

dollar uh is basically uh if

manufacturing and exports and exports

it's incredible exports are lower today

the level of exports than they were uh

in the spring of 2022

>> uh and they're also running negative

year on year manufacturing I'd mentioned

and industrial production running

negative year on year uh that's telling

you that as weak as the Canadian dollar

has been up until recently, it's

probably not weak enough. Uh you want to

be bullish on the Canadian dollar. You

have to start seeing real positive

thrust in the areas of the economy that

are most sensitive to the currency. It's

just not happening. Um and that's a huge

disappointment, especially to me cuz I

changed my call to a more bullish view

on the looney late last year. But the

only reason why the Canadian dollar uh

is off its lows, of course, it's

retraced part of that is only because of

the broad-based debasement trade uh in

the US dollar. I'll tell you what what

Canadians should be measuring the

Canadian dollar against is really

against the Australian dollar

>> and the New Zealand dollar.

>> Uh and it's not because we do a lot of

trade with those countries, but those

are our, you know, commodity oriented

brethren. uh and the Canadian dollar

just in the past two months is down more

than 4% against both those currencies.

Um you know what's that telling you?

Well, it's telling you that they have uh

higher interest rates because they have

stronger internal demand. Of course,

they're more hitched to Asia uh than

they are to the United States. So,

they're hit less by all the trade

uncertainty.

And that's just the currency aspect. If

you if you believe that the Bank of

Canada should keep rates on hold, if you

believe that interest rates are actually

working,

>> Mhm.

>> uh then you have to ask yourself the

question why are the most credit

sensitive sectors

>> uh primarily housing uh residential

construction, home prices, uh retail

trade, uh why are they all basically

either stagnating

>> or declining? And that's telling me that

as much as the BOC has done,

they haven't done enough just yet.

>> David, before we let you go, we're tight

for time. What about Ontario? Um because

it's kind of emerging as the sick man of

Canada in economic terms. The Fraser

Institute said in August, a while ago,

that economic stagnation in this

province means that we now in Ontario

have a lower standard of living than the

rest of Canada. Is that part a big part

of Canada's malaise Ontario going

nowhere?

>> Well, look, Canada is Ontario's the

poster child for the deterioration in

trade relations uh with the United

States. Uh there's no other province um

that has that sensitivity to

manufacturing, which I said is in is in

recession. Uh and there's no other

province that has such close economic

ties with the United States. Mhm.

>> Um

>> so that's really the big problem for the

Ontario economy. Uh we're not, you know,

we're not resource oriented. There's

been obviously a bull market in most

resource prices. Uh well, that's not

what Ontario is about. Ontario is a

manufacturing hub uh with tremendous

export sensitivities to the United

States and that's why the province has

been penalized.

>> We'd better jump David. But your message

to Tiff Mam, start cutting again or

think about it strongly. David, thank

you very much indeed for joining us.