Warning lights are flashing in Canada’s “economic engine,” and experts say even a stop from pop music’s biggest superstar Taylor Swift next month might not be enough to keep Toronto’s flagging economy out of a “T-cession.”
Like the broad, extended contractions marked by a recession, a T-cession refers to a protracted economic slowdown localized to the Greater Toronto Area, including nearby cities such as Mississauga and Oakville. It’s a phrase coined by Saad Usmani, director of economic research and workforce development at the Toronto Board of Trade, in a report last month.
While Canada has so far avoided a technical recession — typically defined as two consecutive quarters of declining real gross domestic product — Usmani’s analysis suggests Toronto might not be faring as well as other major cities, setting the local economy up for a steeper fall.
Usmani looked at data from payment processor Moneris, showing that since November 2023, total spending in Toronto has been sliding. As of July, spending levels were down nine per cent from 2023 levels, marking the steepest yearly decline compared with other major cities in Canada.
After adjusting for inflation and looking on a per-person basis, the figures are even more stark, with spending down 17 per cent year over year.
Usmani also looked at Statistics Canada’s Real-time Local Business Conditions Index, which factors in business sizes, closures and even road traffic data to monitor relative changes in business activity.
While Canada’s other big six metros have held steady here, Toronto again is showing economic output falling since the start of 2024, Usmani says.
“Toronto has been seeing a substantial decline relative to what you see in other parts of Canada,” he told Global News in an interview.
And while the problems of Toronto may not stir too much concern in, say, the Prairies or Quebec or the Maritimes, Usmani warns that, as the hub of financial services in Canada, downturns in Toronto can spread well beyond Ontario’s Golden Horseshoe.
Other experts agree.
“Toronto is the economic engine of Canada. I know the rest of Canada doesn’t like to hear that, but it’s true,” says Moshe Lander, an economist with Concordia University.
“As Toronto goes, essentially, so does Canada.”
Many of the factors conspiring to pump the brakes on Canada’s economic growth are also playing out in Toronto, only more acutely.
While the Canadian unemployment rate has risen to 6.6 per cent in recent months as hiring appetite slows and the labour pool expands, Toronto’s unemployment rate stood at 8.0 per cent as of August, behind only Windsor, Ont., and Edmonton.
Much of what’s driven Canada’s jobless rate higher is not a wave of layoffs, but the rapid rise in population, with youth and newcomers in particular now struggling to find work.
But Toronto is also the first destination for many immigrants arriving in Canada, Lander notes, putting more upward pressure on the unemployment rate.
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That also weighs on the city’s aging infrastructure. It takes time for a city to “absorb” an influx in population, Lander says, scaling up services to meet the new demand and reorienting the city to (hopefully) calm congestion on the streets.
But in the meantime, Lander says that can weigh on business activity, with some choosing to stay home rather than contend with gridlock and some entrepreneurs skipping Toronto entirely when choosing where to set up shop.
Usmani also points to relatively high household debt in Toronto acting as a drag on spending.
The wave of mortgage renewals in recent years has had many homeowners who bought in the early days of the COVID-19 pandemic when interest rates were lower bracing for a payment shock.
TD Bank economist Rishi Sondhi explains that, with home prices rapidly accelerating in the early years of the pandemic, that renewal pain has been particularly acute in Toronto as homeowners grapple with higher interest rates on more valuable properties.
With homeowners forced to put more of their disposable income towards mortgage payments after renewal, Sondhi says Canadians in this position have had to rein in their consumption over the past few years — a trend that he expects to continue, particularly in Canada’s most expensive housing markets.
“That is a force that will continue to weigh on the forecast for consumption in Ontario and B.C.,” he tells Global News.
Housing activity in Canada has largely stalled amid higher interest rates from the Bank of Canada, outside markets such as Calgary that continue to see prices and sales rise amid relative affordability. Meanwhile, a more pronounced slowdown in the local real estate market could also be having a psychological impact on Torontonians.
While the Toronto Regional Real Estate Board said Thursday that sales activity was up in September as lower interest rates brought more buyers off the sidelines, that wasn’t enough to prevent a year-over-year decline in prices.
Sondhi projects that, with diminished demand and seven months’ worth of supply now listed in Toronto’s condo market, prices could be due for more drops in this segment specifically.
Compared with recent years when home prices were spiking and the end of COVID-19 restrictions fuelled a boom in spending, Usmani says the economic backdrop now feels decidedly different in Toronto.
“That has a psychological impact on those who live here. If you feel less wealthy, you’re likely to spend less as well. And we’ve seen that pan out and come to fruition over the past year,” he says.
Just as Toronto residents find all the reasons they need to save their money, a major event is set to roll into town next month that could encourage some to splurge: Taylor Swift and the Eras Tour.
Swift’s record-setting world tour and its purported boosts to local economies where she made stops had politicians, including Prime Minister Justin Trudeau, clamouring for Canadian dates. Toronto’s Rogers Centre will play host to the Eras Tour for six nights in November, with additional dates set for Vancouver in December.
But despite the anticipation from Swifties, Lander says the Eras Tour has a “massively overstated” economic impact.
“Taylor Swift’s not saving Toronto from this one,” he says with a laugh. “You can say lots of things about her, economic saviour’s not one.”
For Torontonians who managed to get the coveted tickets to the show, Lander says there’s likely to be little net new spending because of the concerts itself. That’s just entertainment-focused money in the budget that would’ve otherwise gone to the Toronto Maple Leafs, the Raptors or other dinners out that’s being shifted to the concert, he argues.
Lander argues the economic impact of American tourists coming north of the border to see Swift is also minimal. Toronto hotel rooms are already fairly booked up on a regular basis, so any rooms taken for Swift may end up booting a would-be traveller from Toronto to Niagara Falls instead, he posits.
And many of the aforementioned growing pains of traffic congestion are only going to be worse when the Eras Tour rolls into town, Lander notes, which could lead other Torontonians to just stay home when they otherwise might’ve gone out on the night of a concert.
“Those types of things then could actually knock economic growth down, not boost it up. When you net all of this out, she’s not going to do that much to save Toronto if it’s on the downswing,” he says.
“She’s a good economy. It’s just, she’s not a good trade partner.”
Usmani agrees that the trends in Toronto are deeper than one-off events like Taylor Swift or the recent Toronto International Film Festival, which may end up a “blip” in the overall spending patterns.
He adds that while the federal government’s plans to curtail the numbers of temporary foreign workers and international students coming into the country might help to reduce demand for services in Toronto, it will also act as a “headwind” to net growth for the immigration hub.
Usmani believes a localized recession is not out of the cards for the GTA, and says it will take a series of interest rate cuts, an uptick in homebuilding and a return to confidence among consumers that they can spend again before the city exits its current doldrums.
Lander also sees silver linings for Toronto’s policymakers, arguing that downturns like this mark the perfect opportunity to recalibrate. If the city is going to keep growing at a rapid pace in the years ahead, what can Toronto do now to position itself for opportunities on the horizon?
“That’s the thing that’s going to try and avoid these ups and downs. It doesn’t eliminate the business cycle, but at least smooths it out a little bit,” he says.
“It’s a lot more than just a subway expansion and building a few highrises.”
— with files from Global News’ Anne Gaviola