Prime Minster Justin Trudeau delivers remarks during a Liberal fundraising event in Toronto on June 28, 2023.Tijana Martin/The Canadian Press
What should Prime Minister Justin Trudeau’s Liberals do if a recession is coming this fall and they want to stay in power?
Call an election, quick.
“You go sooner not later,” said Greg Lyle, the veteran pollster and political strategist who is president of Innovative Research Group. “There’s no question.”
But the Liberals can’t really do that. Or at least, not easily. Mr. Trudeau has all kinds of political impediments standing in the way.
No one knows for certain if there will be a recession later this year, but with rising interest rates and stagnant after-inflation wages, many Canadians will be feeling worse off anyway.
“For most Canadians, their economic reality is going to become more difficult over the next year,” said Frances Donald, Manulife Investment Management’s chief economist, in an interview.
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That sort of gloomy outlook tends to make minority-government prime ministers look to an early election, and there have been rumours in Ottawa that Liberal strategists are mulling the possibility.
But Mr. Trudeau is trapped by things he has said and done. He already called an early election in 2021, and there was backlash from many voters who saw it as unnecessary and politically cynical. It’s a risk to do it again.
He’d have even more explaining do this time. He has a parliamentary agreement with the NDP that is supposed to guarantee his government’s survival until 2025. Breaking the deal would presumably mean scuttling promises to act on NDP policies such as pharmacare. That’s a conundrum for the Liberals because they will be hoping to win over NDP voters in the next election campaign.
There’s an added wrinkle this fall: The Liberals are negotiating with opposition parties over an inquiry on foreign interference in Canadian elections. It will be hard to call a new election until there has been some account of interference in 2019 and 2021. The Liberals will be keen to see a first phase of an inquiry done early to leave open the possibility of a vote in the spring of 2024.
Add all that up and the Liberals appear to be boxed in.
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Ms. Donald said most traditional leading indicators are pointing to a “very elevated risk” of a recession in the second half of this year. That usually means job losses, and the worst case this time is a potential doubly whammy of stubborn inflation and high interest rates combined with unemployment. Much of it is caused by outside factors Canadian policy-makers can’t alter, she said.
Ms. Donald noted that we are not in a traditional economy right now, so some things are less predictable. There is a post-pandemic hangover in manufacturing, for example, and recent labour shortages in Canada and the U.S. might make employers reluctant to lay off in a slowdown.
However, she said, whether there is technically a recession or not, many Canadians are feeling their own economic slowdown, seeing food prices rise and the prospect of renewing their mortgages with much higher payments.
Mr. Lyle points to those mortgage renegotiations as a potential political bomb for the Liberals. The party’s electoral math requires winning seats in and around Toronto and Vancouver, two cities with high house prices and voters who have large outstanding mortgages. Many will be renewing their mortgages this fall and in 2024, and find their expenses spiking higher.
Of course, Liberals can hope they can convince voters that they can better steer the country through tough economic times than the Conservatives or other parties – for example by subsidizing industrial plants or promising benefits to shield ordinary folks from some of the impact.
Mr. Lyle thinks that will be a tough sell. Affordability is already the top concern for Canadians, and it’s about to get worse. After nearly eight years in power, the Liberals would be telling people more of their policies can make their economic situation better – and if there is a recession, they will be making that argument while people fear losing their jobs.
“That puts the Liberals on the wrong side of hope,” he said.
Where does that leave Mr. Trudeau and the Liberals? Presumably fretting that things will suddenly get worse this fall. Though the Liberals appear to be boxed in and unable to call an election in 2023, they will surely be looking for an opportunity to do it in early 2024.