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Posthaste: Who says cities are dead? These four are driving Canada's economy Back to video

Canada’s big cities took the toughest knocks during the pandemic, as families fled to the suburbs and beyond and office buildings emptied out.

Yet despite concerns about “big city cores getting hollowed out,” the reality is they still drive Canada’s economic activity, says a report from Bank of Montreal economists Robert Kavcic and Erik Johnson.

The economists say Canada’s four biggest cities — Toronto, Montreal,  Vancouver and Calgary — have bounced back from the pandemic shock — albeit with a few bumps and scrapes.

Employment in these cities is now 8 per cent higher than in 2019, compared to 6 per cent for the rest of Canada, the report says.

Some industries such as restaurants, hotels and other direct services are still below their past peaks, but surging employment in other areas has made up for it.

Professional and technical industries, education, finance and public administration have all soared above pre-COVID levels, suggesting that big cities are not being hollowed out, but the sources of growth are reshaping, said the economists.

“In an economy where knowledge sector jobs are increasingly driving employment growth, cities will remain important engines of economic activity,” they said.

A look at BMO’s chart below shows that even during the depths of the pandemic the contribution of the country’s biggest cities was staggering, with Toronto’s output towering over the provinces.

In 2020, the four largest cities accounted for 44 per cent of Canada’s gross domestic product and 41 per cent of total employment.

“When it comes to overall economic activity, the big cities are still providing significant muscle,” they said.

The high of cost of living continues to drive younger families out. The economists said by mid-2022 about 120,000 people on net moved out of Toronto, Montreal and Vancouver combined to other parts of their respective provinces.

Canada has also seen record migration between provinces, with Ontario losing almost 40,000 people on net in the latest year, mostly to Alberta and Atlantic Canada.

“Unlike in past cycles, when younger families would move to find work, or better-paying jobs, affordability is now the biggest motivator,” said the economists.

But immigration is more than filling the void.

Adult population growth in the four largest cities is just under 4 per cent year over year, exceeding the 2.6 per cent growth for the rest of the country.

“The reality is that the big cities are a big draw for international immigrants,” they said.

That’s not to say there aren’t problems.

While young, productive families are pushed out, the flow of newcomers puts immediate stress on housing, services and infrastructure that has become a “major challenge” for cities, said the economists.

Remote and hybrid work is also keeping weekday activity well below “normal” in downtown cores. Public transit ridership is down almost 20 per cent from 2019 across Canada, and in Toronto, it’s off 23 per cent. With transit revenues slumping, municipalities are left to foot the bill, says the report.

Then there is commercial real estate, whose woes have been well documented lately. Office vacancy rates climbed to a “historic high” of 18.3 per cent in Canada last year, and the economists said there is no evidence declining demand has hit bottom in Toronto and Montreal.

Amid uncertain demand and higher borrowing costs, investors continue to turn away from office real estate and further price corrections are still possible, they said.

Another strike against big cities is housing affordability. While this problem is bad across the country, it’s especially bad in these larger centres.

The average home in Regina costs $307,600; in Vancouver you’re looking at $1.27 million and Toronto $1.1 million, the report says.

BMO’s bottom line: “Despite the challenges facing Canada’s largest cities coming out of the pandemic, they are poised to remain key drivers of future economic growth,” said the economists.

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Cooler inflation was a welcome relief to Canadians and probably the Bank of Canada this week. The inflation rate decelerated to 2.8 per cent in February, data showed Tuesday, the first time the consumer price index has fallen within the central bank’s target range for two straight months since early 2021. If you strip out shelter costs, which are linked to higher interest rates, inflation is 1.3 per cent for the nation, and 2 per cent or below for the provinces, says National Bank of Canada economist Stéfane Marion. Manitoba slips into deflation.

The numbers highlight that there is the risk the Bank of Canada is already doing damage to the economy with overly restrictive rates, said Marion.

“The last time the BOC’s policy rate was as high as it is now with so many provinces with CPI exshelter inflation below 2 per cent was in the early 1990s,” he said. “That did not end well for the Canadian economy.”

• Bank of Canada deputy governor Toni Gravelle speaks in Toronto on “Normalization of the Balance Sheet.”
• Today’s Data: Canada new housing price index, United States current account balance, existing home sales
• Earnings: Lululemon Athletic Inc, Lithium Americas Argentina Cor, Accenture PLC, NIKE Inc, FedEx Corp.

• Bank of Canada policymakers at odds over when they can cut interest rates
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• 5 tax changes to watch out for in the upcoming federal budget

Financial help for your children can range from helping them keep their heads above water to helping them to buy a house, as well as gifting in your lifetime rather than letting the kids wait for their inheritance. The risk is whether you can afford to make a gift in the first place. Ted Rechtshaffen helps you do the homework before you put a bow on it.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line at aholloway@postmedia.com with your contact info and the general gist of your problem and we’ll try to find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers led by Julie Cazzin or one of our columnists can give it a shot.

McLister on Mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Read them here 

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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