(Bloomberg) -- Justin Trudeau’s plan to reverse his slide in opinion polls and keep his job as Canada’s prime minister hinged on the hope that time was on his side.
But when a power-sharing deal with an opposition party collapsed on Wednesday, so too did the security of another year in office to try to boost his popularity before an election.
Like many incumbent leaders around the world, Trudeau has been hammered by public frustration over inflation, soaring housing costs and immigration. His Liberal Party’s poll numbers have been mostly stuck in the low-20% range since last year, while Pierre Poilievre’s Conservatives have raced ahead with a double-digit lead.
Trudeau’s team believe the economy is turning in their favor, however. Inflation has cooled to 2.5% and interest rates are falling, giving relief to mortgage borrowers and businesses. Next year, if economists’ forecasts are right, growth will be solid, if unspectacular. One more year would also allow the government to show more impact from its housing and child-care programs.
“I think time is our friend,” Finance Minister Chrystia Freeland told Bloomberg in an interview in July. “We have the investments in place that are starting to kick in.”
But on Wednesday, the left-wing New Democratic Party, which has been keeping Trudeau’s minority government propped up since 2022, pulled out of that informal coalition. That raises the odds that an election will happen before October 2025, the current scheduled date.
In ripping up the deal, NDP Leader Jagmeet Singh accused the Liberals of being “weak” and beholden to corporate interests. He had recently blasted the government for forcing locked-out rail workers back on the job, a decision that infuriated the New Democrats’ union base.
Trudeau’s government must now find support from any one of the three main opposition parties to pass legislation and stay in power.
In theory, an election can happen as soon as October — though Singh probably doesn’t want to face the voters yet, either. He may want to give his own party more time to separate itself from the government and build support.
An NDP official, asking not to be identified discussing internal conversations, said the party doesn’t plan to seek the first opportunity to bring down the government. Instead, it will decide votes on a case-by-case basis.
“Canadians are fighting a battle. A battle for the future of the middle class,” Singh said in his recorded announcement. “The Liberals have let people down. They don’t deserve another chance from Canadians.”
Risky Outlook
While many of the economic forces dragging down Trudeau’s popularity are global, some are unique to Canada. And despite his advisers’ hopes, time may not necessarily heal the wounds left by the pandemic and some of his government’s policy choices.
The country’s housing supply was already strained before the government decided to relax the entry rules for temporary foreign workers and international students to plug short-term gaps in the labor market.
The surge of temporary residents pushed the country’s population growth rate to 3.2%, among the fastest in the world, putting pressure on rents and home prices. And because of higher interest rates, home affordability is close to its worst-ever level in data going back to the 1980s, according to Royal Bank of Canada.
Job gains haven’t been able to keep up with population growth, and the youth unemployment rate has risen to its highest level in more than a decade outside the Covid pandemic. Gross domestic product per capita, one measure of living standards, has fallen to 2017 levels. The central bank is closely watching downside economic risks.
And although inflation has receded, Canadians may not quickly forget their loss of purchasing power. The consumer price index is 11% higher than it would have been had inflation continued at its pre-pandemic pace, according to Bloomberg calculations.
Trudeau’s government points to policies to improve affordability, such as the subsidized child-care program and billions of dollars to build more homes. It’s also set to slow down the immigration wave. These measures will take time to have an impact, however. In the meantime, Poilievre’s catchphrase — “Canada is broken” — is capturing the attention of many voters.
Poilievre has also overseen a surge in fundraising since he was elected Conservative leader two years ago. The party raised more than twice as much than the Liberals in the second quarter, and have spent heavily on television campaigns to soften his combative image.
It’s a perilous environment for Trudeau, who has made it clear he has no intention of calling an election soon. He told reporters Wednesday that a national vote will happen over the coming year – but “hopefully not until next fall.”
--With assistance from Jay Zhao-Murray, Laura Dhillon Kane and Randy Thanthong-Knight.
©2024 Bloomberg L.P.
