Thank you very much, Senators, for the opportunity to meet and share my views on Canada’s economic and fiscal situation as you prepare for the upcoming federal budget.

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Today I will provide some short comments on the current state of Canada’s economy, how it is withstanding the uncertainty caused by the erratic changes in U.S. trade policy, and themes that the federal government should emphasize in its future actions. Then I will welcome your questions and comments.

Recent economic indicators confirm that Canada’s economy is maintaining its stability and momentum despite the disruptions arising from U.S. tariffs and other uncertainty on the international front. Second-quarter growth was both strong and well-balanced. All major cylinders in Canada’s economic engine were firing: with significant growth in consumer spending, government expenditure (on both current services and capital investment), business non-residential investment, residential investment, and exports. Even our exports to the U.S. grew, as well as our exports to other countries. The overall rate of growth (2.3% annualized) would have been much stronger but for a major inventory drawdown during the quarter, as businesses worked down excess inventory accumulated in previous less vibrant quarters. That portends continued strength in future quarters, as firms adjust to renewed growth and readjust their inventories accordingly.

In the labour market, job-creation has been decent if not spectacular, with over 200,000 jobs created in the last 12 months, most of them full-time. Even manufacturing (which has borne the brunt of U.S. trade actions) has seen year-over-year job growth of over 20,000 new positions, which attests to the diversity and resilience of this vital sector. Ironically, the weakest employment numbers are presently arising from the public sector, including education (mostly due to job reductions in colleges, adjusting to the whiplash effects of erratic immigration policies for international students) and public administration (mostly due to headcount reductions in the federal civil service). This public sector downsizing is unnecessary. The public sector is relatively insulated from President Trump’s trade actions, and should be a source of stability as the economy adjusts to the new global environment. The federal government in particular should rethink this downsizing, which will also affect the quality of federal service delivery to Canadians.

One warning sign from the labour market is a noted deceleration of wage growth, which had been quite robust over the previous four years. The initial inflation shock following the COVID pandemic required a pickup in wage growth in Canada, to try to restore real purchasing power for Canadian workers damaged by the temporarily high inflation of 2022 and 2023. That repair job worked: wage growth exceeded inflation significantly from late 2023 until the present, allowing real wages to recover and then some. Real wages are now higher than they were before the pandemic, and this has been essential in helping Canadian address affordability challenges. It is testament to Canada’s labour relations system that real wages, on average, have been more than fully repaired. Strong improvements in minimum wages in most provinces (and the federal jurisdiction), and Canada’s strong collective bargaining system, explain why real wages have performed better here than in many other countries – including the U.S., where real wages are falling.

However, a combination of slower wage growth and a rebound in inflation (resulting from the U.S. war against Iran) are now threatening that success. Hourly nominal wages were up only 2.0% year-over-year in August, the slowest in 5 years – and not enough to keep up with current inflation. Placing continued priority on strong wage gains for Canadian workers will be essential for protecting purchasing power and sustaining consumer spending, which after all accounts for half of total GDP. In this context, I must express alarm regarding the federal government’s intention to codify restrictions on normal collective bargaining rights in its proposed changes to the Canada Labour Code, as part of its current Bill C-39. Codifying the government’s right to interfere arbitrarily in bargaining and suppress constitutional rights (including the right to withhold labour) on the basis of vague and subjective measures of ‘national interest’, is a step in the wrong direction, that would heighten the risk of future deterioration in real wages in Canada.

Canada’s trade performance has also been surprisingly robust despite the impact of swings in U.S. policy. Exports of goods and services in nominal terms have increased to both the U.S. and other countries, partly due to higher prices (especially for oil) and partly increased volumes. Since the end of 2024 (when President Trump won election), Canada’s exports to countries other than the U.S. have grown by 18% (to the second quarter of 2026). Even our exports to the U.S. are up 9%. The share of our total exports going to the U.S. has fallen to 67%. There is a lot going on behind these numbers (including the rise in world petroleum prices following the U.S. war on Iran), but it seems clear that efforts to diversify Canadian trade ties are paying off.

Let me conclude with some high-level thoughts about the broad task facing Canada’s economy in the coming years. The attacks on our economy, and indeed our sovereignty, from south of the border are forcing us to redefine how we orient Canada’s economic and social development. Instead of relying on access to the huge U.S. market as our key advantage in investment location, we must develop a more self-reliant and diversified vision for future investment, innovation, trade, and growth. This means attracting more investment here (from both foreign investors, but also more investment of our own capital, such as the trillions held by Canadian entities, including our pension funds, in the U.S. and other foreign markets). It means strengthening our trade ties with the rest of the world. But it’s not just the quantity of investment and exports that matters: it’s also the composition of those flows, and the quality of the economy – and society – that we build. There is a current temptation, as we gird our national loins to withstand the irrationality of the Trump administration, to double down on anything we can do, and do quickly. This has contributed to a great rush to expand resource extraction and exports.

However, reinforcing Canada’s dependence on extraction and export of unprocessed primary products has its own risks to our economic capability and sovereignty – including well-known vulnerability to global demand and geopolitical swings, as well as (in the case of fossil fuels) environmental risks that are more urgent every year (and which continue to accumulate regardless of the climate denialism of the U.S. government and some others). Our vision should be to build an economy that is not just viable in the face of Trump’s attacks, but retains the core values which motivate Canadians to defend our country as an entity distinct from that south of the border. That means preserving a balance in our economic strategy between getting big things done quickly, and making sure we are doing the right kinds of big things, and doing them properly – including with due attention to sustainability, Indigenous consultation and consent, and basic social and labour values and rights. In that regard, it is more important than ever for Senators to play their full oversight role, to ensure that the federal government’s response to this dangerous moment does not dismiss those values and priorities in a rush to sign deals and accelerate projects.

Thank you again for your attention, and I look forward to your questions or discussion.