In the tumultuous landscape of Canadian politics, the Liberal government under Justin Trudeau has faced numerous challenges, from the SNC-Lavalin controversy to ethical violations and the shadow of the COVID-19 pandemic. However, a slow-moving economic storm is now threatening to uproot them from power, as high inflation and rising interest rates sow discontent among the electorate.
As the country grapples with the aftermath of the pandemic, the economic fallout has become a primary concern for Canadians. Despite the Canadian economy outperforming expectations in various aspects, the surge in inflation and interest rates has left citizens feeling financially strained, fueling discontent that is reflected in the polls.
The turning point for the Liberals seems to have coincided with the Bank of Canada's decision to resume raising interest rates. As Canadians faced mortgage renewals this year, higher interest rates translated into increased monthly payments, leaving less disposable income for daily expenses. This financial pinch has played a pivotal role in eroding public support for the governing party.
According to Tyler Meredith, former head of economic strategy and planning for Finance Minister Chrystia Freeland, the correlation between the Bank of Canada's rate hikes and the decline in Liberal support is evident. Even before the recent spike, polling data from Abacus suggested a shift in favor of the Conservatives following the central bank's first post-pandemic rate hike in March 2022.
The Liberal government has faced criticism for its handling of the affordability crisis, with accusations of overspending during a period of soaring inflation. Economists have also pointed to a mismatch between housing and immigration policies, exacerbating the impact of higher interest rates on housing affordability.
However, the Liberals' predicament is not unique to Canada. Around the world, inflation has wreaked havoc on economies, prompting central banks to aggressively raise interest rates. This global phenomenon has led to voter dissatisfaction and a decline in approval ratings for incumbent leaders, as seen in the United States, the United Kingdom, and the Netherlands.
In Canada, the Bank of Canada's key interest rate has reached five percent, the highest since 2001. This tightening of monetary policy has contributed to a slowdown in spending, resulting in a rise in unemployment rates and a tempered economic outlook for 2024. Despite the overall positive performance of the Canadian economy, the public sentiment remains pessimistic, coined as a "vibe-cession" by Tyler Meredith.
As the Conservatives, under the leadership of Pierre Poilievre, capitalize on a simple yet aggressive cost-of-living message, the Liberals are grappling with the challenge of bridging the gap between negative public sentiment and the actual economic reality. The upcoming federal election scheduled for fall 2025 poses a crucial test for the Liberals, who must find a way to communicate effectively about their economic policies and address the anxieties felt by the electorate.
While economists anticipate a return to a more manageable inflation rate by 2025, the challenge for the Liberals lies in delivering a compelling economic message that resonates with Canadians. Lowering costs and addressing the concerns of the public will be crucial for the government's chances of regaining momentum and securing electoral success in the coming years.
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