Taking Stock: New threats to Canada’s economy

Key Concepts

• New World Order: Shifting global dynamics away from US-centric trade and security.
• AI Valuations: Concerns about inflated valuations in the Artificial Intelligence sector.
• Housing Affordability: Analysis of housing starts, interest rates, and price trends in Canada.
• Food Inflation: Persistent high inflation in grocery prices driven by supply chain issues.
• Space Technology: Kepler’s launch of an optical satellite network and its implications for data communication.
• Wealth & Power Disparity: Oxfam’s report highlighting the disproportionate political influence of billionaires.
• Core Inflation: Measures of inflation excluding volatile components, used by the Bank of Canada.
• KOSMA: Review of the Canada-South Korea free trade agreement.

Trade Turmoil and the Shifting Global Landscape

The program opened with a discussion of the evolving global order, highlighted by Prime Minister Mark Carney’s statement at Davos that the “old world order is officially dead.” This necessitates a new path for middle powers like Canada and its European allies, independent of US safeguards for trade and security. This shift is occurring amidst US President Trump’s unpredictable actions, including talk of acquiring Greenland and imposing new trade sanctions on the EU. The implication is increased geopolitical uncertainty and the need for Canada to proactively forge its own international relationships.

Economic Outlook & Investment Strategy

Ed Develin, Managing Partner of Delin Capital, addressed investor concerns in the face of this uncertainty. He cautioned about the high levels of debt being issued in G7 countries, suggesting potential vulnerability in long-term yields. He also expressed concern about the valuations of AI companies, noting that his firm reduced its S&P 500 exposure from 38% to 20% by shifting to a cap-weighted product. Despite this caution, Develin acknowledged the potential for economic growth driven by investments in data centers and energy infrastructure to support AI implementation, potentially totaling trillions of dollars. However, he warned that the current revenue levels of AI companies (hundreds of billions) do not justify the massive investment, suggesting a potential correction down the line. He specifically advised older investors to prioritize more stable, dividend-paying stocks like banks. He stated, “being a little bit cautious and not putting all your eggs in the AI basket um would probably be something that would be prudent.”

Canadian Housing Market Analysis

The segment on housing affordability presented a mixed picture. Housing starts in Canada rose 5.6% in 2025, the fifth-highest annual total on record. However, this growth was uneven, with significant increases in Montreal (58%) and Ottawa (12%) offset by declines in Toronto (-31%) and Vancouver (-3%). The six-month trend in starts is virtually flat, despite a December upturn driven by multi-unit builds in Toronto (151% increase) and Vancouver (17% increase). Falling interest rates – 5-year variable rates from 5.95% to 3.45%, and fixed rates from 5% to 3.85% – combined with price drops, improved affordability in eight of twelve markets. However, forecasts predict only modest rate declines and anticipate a 5% rise in home sales and a 2.8% increase in prices in 2026.

Matthew Labair, Chief Economist at CMHC, emphasized that while 2025 saw a good number of housing starts, the momentum has slowed. He noted a decreasing trend in starts since December and highlighted the impact of geopolitical risks and the KOSMA review on the Canadian economy. Labair also pointed to a shift towards rental and “missing middle” housing, but cautioned that rental construction may moderate as vacancy rates increase and rent growth decelerates. He stated, “rental was a a main uh supporter of housing construction in Canada 2025…but eventually the math won't work as well for rental either.” He stressed the importance of income growth alongside price moderation to restore affordability, noting that “income has to catch up with not only the the the price increase that's coming down the road in 2026, but those that happened over the last several years.”

Persistent Food Inflation

The program highlighted the ongoing issue of high food inflation (5-6%), with some categories experiencing double-digit increases. Colin Mang, a professor of economics at McMaster University, explained that this inflation is largely driven by supply chain issues rather than grocery store profiteering. He cited examples like coffee, beef, and oranges, where global supply constraints and increased transportation costs are pushing up prices. He noted that while housing costs are stabilizing in some areas, incomes haven’t fully caught up with past price increases. He pointed to McDonald’s Canada’s decision to freeze prices on value meals as a sign that businesses are concerned about consumer affordability and a potential indicator of weakening economic confidence.

Canadian Space Innovation: Kepler’s Satellite Network

Kepler, a Toronto-based space technology firm, recently launched 10 near-earth optical satellites, adding to its existing 23 in orbit. This creates one of the first space-based optical networks, enabling laser communication in orbit. Former astronaut Chris Hadfield described this as “moving the web to orbit” and a significant step towards independent Canadian commercial activity in space. The technology allows for real-time, high-speed data transmission between satellites and with ground stations, facilitating applications like wildfire detection and improved data relay for remote sensors. Hadfield emphasized that the decreasing cost of launch is enabling more companies to participate in space exploration and that Kepler’s launch is a “bellweather of what's coming.” He stated, “It's like a community getting, you know, high-speed internet for the first time and uh and it leads to a lot more things.”

Wealth, Power, and Political Influence

The program concluded with a discussion of Oxfam’s report on billionaires and their disproportionate political influence. While wealth inequality is a long-standing concern, Oxfam’s focus is now on the power that money buys. The report highlights that billionaires are 4,000 times more likely to hold public office than regular citizens and have significant influence over political agendas through financing, messaging, and media ownership. The takeaway was that while wealth inequality will likely persist, it’s crucial to prevent it from translating into political inequality and to ensure a level playing field for all citizens.

Conclusion

The program presented a complex and nuanced picture of the current economic landscape. While there are glimmers of hope in areas like housing affordability and technological innovation, significant challenges remain, including geopolitical uncertainty, persistent inflation, and the growing concentration of wealth and power. The key takeaway is the need for proactive policies to address these challenges and ensure a more equitable and sustainable future.