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Ep 20: The Economic Twilight Zone - How Uncertainty Is Reshaping Canada's Financial Landscape

• Julia Pennella • Season 1 • Episode 20

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Economic uncertainty hangs like a fog over Canada’s future — and in this episode, Brendon Ogmundson, Chief Economist at the British Columbia Real Estate Association, helps us cut through it. He breaks down the complex forces reshaping our financial landscape, from housing markets to global trade tensions.

But beyond the usual indicators lies something harder to pin down: what Ogmundson calls “uncertainty as more of a vibe than something that can be quantified.” It’s a vibe that’s freezing consumer confidence and sidelining homebuyers, with BC home sales now sitting 20–25% below the 10-year average.

The stakes are rising. With potential U.S. tariffs on the horizon and economic policy uncertainty measured at levels four times higher than during the 2008 financial crisis, markets are bracing for impact. Even though BC enjoys more diversified trade — sending only 50% of exports to the U.S., compared to much higher figures in other provinces — it remains vulnerable to global headwinds. As Ogmundson puts it: “We’re a small, open economy. If the global economy slows, the BC economy will slow as well.”

The conversation takes a surreal but fitting turn, comparing our current moment to a Twilight Zone episode — one where fear and unpredictability rule the day. It’s a powerful metaphor for a strange, unstable era where economic “stagflation-lite,” soaring construction costs, and stalled development pipelines feel all too real.

If you're looking to understand the intersection of trade tensions, housing affordability, and monetary policy — all from a BC lens — this episode is essential listening. Ogmundson’s insights go beyond the headlines, offering a grounded perspective on why this moment feels so different from past downturns — and what we should be watching next.

Quick heads up: this episode was recorded on May 8, 2025, so while the news may have evolved, the insights still hit home.

Julia Pennella:

Hey everybody, welcome back to let's Talk Politics. Today's episode is a real treat. I'm joined by Brendan Augmanson, chief Economist at the British Columbia Real Estate Association. Brendan's got the data, the forecasts and even a few 1950s references to help us make sense of the economic forces shaping our country right now. He's not just crunching the numbers he's part of the British Columbia Ministry of Finance's Economic Forecast Council and he contributes to the Philadelphia Fed's Survey of Professional Forecasters. So, yeah, he knows a thing or two about numbers.

Julia Pennella:

Today we're unpacking everything from BC home sales to national GDP trends, the impact of tariffs on both the provincial and federal economies and how something as vague as uncertainty—yeah, a total vibe—can seriously shake consumer spending. Oh and, if you've ever felt like we're living in a rerun of the Twilight Zone, brendan's got thoughts on that too. But before we jump into the data, let's hit a few headlines. That too. But before we jump into the data, let's hit a few headlines.

Julia Pennella:

Last week, prime Minister Carney made his first official trip to Washington for a sit-down with the US President, donald Trump. The headline topic was tariffs. But let's be real nothing with Trump stays on script for long. A reporter asked if Trump still thought Canada should be the 51st state. Trump went full salesman, pitching everything from military support to lower taxes and calling our shared border an artificially drawn line with the ruler. Carney, the calm negotiator, fired back with a dry smile Canada's not for sale and won't be for sale ever. When Trump said never, say never, carney delivered a classic Canadian mic drop Never. It was firm, respectful and just the right amount of sass, kind of like a diplomatic body check at Centre Ice.

Julia Pennella:

And earlier this week, prime Minister Carney also unveiled a smaller, more focused cabinet 28 ministers supported by 10 secretaries of state A mix of fresh faces and familiar faces. Parliament will return on May 26th, with King Charles delivering the throne speech on May 27th. Quick heads up this episode was recorded on May 8th, 2025. So, while the news may have changed since this conversation was recorded, the ideas and thoughts still remain relevant. All right, from supply and demand to 1950s throwbacks. Let's get into the economics masterclass with Brendan Augmanson. Let's talk politics. So, brendan, thanks so much for joining us.

Brendon Ogmundson:

You bet Lots to cover.

Julia Pennella:

Yes, absolutely so, brendan. I want to start off. You're an economist and now we've got a prime minister with a pretty solid economic background.

Brendon Ogmundson:

Does that give you hope that we'll see some fiscally responsible policies and some real steps forward toward economic growth? Yeah, I guess it's always the dream that you're going to have, like a technocrat in office at least the dream for economists that policy will be made with an eye towards efficiency and productivity and that kind of thing. I think it was pretty funny that I think you referenced that the saying about politics is that you campaign in poetry and govern in prose, and he would be governing in econometrics, which I'm not sure most people know what econometrics is. It's always like a hard word to pronounce when I used to put it in my bio. So, yeah, I have a lot of hope.

Brendon Ogmundson:

A lot of the policies that they announced that I'm sure we'll talk about, I think are some of the things we really need to do, at least on the housing side and as far as maybe addressing Canada's really long-term structural problems, things like interprovincial trade and our lagging productivity growth. Hopefully we'll get some pro-growth kind of policies in those ways too, or at least like we've had governments for a while now that really ignored things like investment and productivity, and so there's some hope. So we'll see how that actually works in the process.

Julia Pennella:

Yeah, well said and I totally agree with you. I think there has been a bit of shift in understanding what are the benefits of investment, how can we work with private sectors and be able to utilize Canada's resources. You mentioned intergovernmental trade. We're starting to see a little bit of movement of that with announcements in Ontario and Eastern Canada, and hopefully BC will take suit. But you know, as we're talking about Prime Minister Carney, he did just wrap up his first meeting with President Trump and, unsurprisingly, tariffs were a big part of that conversation. There's still a lot of uncertainty around how things will play out, but if these tariffs go ahead, what kind of impact could we potentially see on BC's housing market and maybe affordability more broadly?

Brendon Ogmundson:

It's so hard because I've been doing this now like tariff kind of analysis since, like Christmas essentially, I spent a large part of my December just running simulations and macro models about different size of tariff shocks. Remember when 10% was the tariff proposal? Then suddenly it's 25%. We're in kind of limbo right now. Obviously, the meeting with Carney and Trump went as well as those meetings tend to go, and maybe we'll get some announcements in the next few weeks and get further clarity.

Brendon Ogmundson:

Right now, what we're dealing with is mostly an uncertainty shock. So there's popular measures of uncertainty policy uncertainty like the Economic Policy Uncertainty Index that's produced by academics out of Stanford is reading like absolute record levels, like four times as much uncertainty as COVID or the financial crisis in 2008, 2009. And that's seemingly having a pretty large effect on the housing market. Here We've seen home sales that were basically around their 10-year average at the end of last year fall below like 20, 25% below that 10-year average to start the year, mostly because of that uncertainty. We attribute most of that change due to just this kind of uncertainty shock which, if you're concerned about your job security over the next year, because all you're hearing about in the media or in social media is that tariffs are going to cause a recession, then maybe you're not going to make a major life decision like purchasing a home, especially in really expensive markets like Vancouver, where we're seeing the largest impact. So the initial impact has just been to really impair the confidence of potential buyers and push them back to the sidelines. Impair the confidence of potential buyers and push them back to the sidelines. As far as how you know if we get actual tariffs, depending on what those look like right now, I think the average tariff rate, with what's been levied on the auto sector or the steel and aluminum sector or others, I think it's probably 12% effective tariff rate right now and it's really confusing because some of it's about compliance with the current trade deal with the United States and Mexico, but it stays around 12% If we just kind of stay there.

Brendon Ogmundson:

The Bank of Canada's forecast was maybe, with no new tariffs, we have a kind of a pause in economic growth in the second quarter of this year and then we kind of rebound back to like slow, like one and a half percent growth of the economy for the rest of the year, which compares to like a 2% forecast pre-tariff. So not terrible. We've come out of that kind of okay. Their other scenario is if we have expanded tariffs kind of what Trump has been threatening then we would be in a recession for as long as a year and then a slow recovery after that. Those are two very different scenarios, which kind of tells you how much uncertainty there is how it affects BC if those tariffs hit is a little different than the rest of Canada because we have less exposure to the United States.

Brendon Ogmundson:

50% of our exports, our goods exports, go to the US. About close to 20% go to China. They're of course impacted by US tariffs on China so that will slow their demand. And then the rest of our trade is Japan and some on Korea and other countries. So we have more diversified trade portfolio. But that doesn't mean we'll be unaffected. But at least the direct impact. In a market like Vancouver about 3% of the workforce is exposed to US exports. In Victoria it's like under 2%. Most major cities in BC are under 2% direct exposure. But if the global economy slows we're a small, open economy the BC economy is going to slow as well and that's going to hit home sales. So right now we're kind of like what comes after uncertainty, right, is it going to be getting back to normal, or are we going to have to be dealing with some pretty significant tariffs and a slowdown in economic growth? So we don't really know. So the best that economists can do right now is just run a bunch of scenarios and kind of shrug our shoulders.

Julia Pennella:

Yeah, I appreciate that analysis and it's hard, like you said, you can't predict the uncertainty, especially with Trump and pulling the tariffs on and off. You've mentioned steel, which obviously is a big piece in manufacturing and as well as homes. We're very fortunate to have lumber here, but steel is one thing that we do have a domestic economy of, but being able to grow that. So I'm curious from again, tariffs, uncertainty what do you think the materials cost is going to impact when it comes to home sales and home building? Because that was one thing I think all the parties were fresh off the election. We're talking about build, baby build, but how can we build when we have a skills trade deficit, so we don't have the workforce to do it, but also these potential materials that are used to build. We're going to talk a little bit about pre-manufactured and fabricated homes, but if we're building the same way we do, how are the tariffs going to impact those building materials and, in results, home sales and home cost?

Brendon Ogmundson:

Yeah. So it's sort of like short-term and long-term effects. So say we have the worst case where let's, just for simplicity, say there's a 25% blanket tariff on Canada and we match, as we've threatened, a matching 25% tariff on Canada and we match, as we've threatened, a matching 25% tariff on about 50% of imports from the United States. Some of that's going to be building materials. I think a large portion of the building materials for an apartment high rise I can't remember what the number is, but I think it might be like 25% or 30% might be higher of the materials are imported, and the machinery and equipment as well to get a lot of. That obviously means that the cost of building is a lot higher. So we've done some like preliminary kind of simulations Like what if all this pass through from tariffs means like a 10% hit to building costs. Obviously your costs go up in the face of all the other cost pressures that developers are already facing. I think construction costs have gone up something like 80% since 2019 with like labor and materials. That just means less development. And then since on the supply side, on just like the peer, like input costs, you're also dealing with in the short term a hit to demand where there's not a lot of buyers right now for pre-sales or for the new units that are completing or seeing a rise in inventory. And so if you've got a situation where your costs are rising and your demand is falling, just a recipe for a lot fewer starts in the next couple of years. So that's kind of the short run impact is less construction activity. Obviously that's a hit to economic growth and a hit to hiring. It also makes it really hard to hit the province's housing targets over the next decade. They want to build about 600,000 or complete about 600,000 units in 10 years. We're going to be way behind that. Starts are kind of on the pace they're on now. We're down 30% in the first quarter. It's just going to be really difficult.

Brendon Ogmundson:

And then we get into situations where we've seen in the past happens constantly in Vancouver and in BC where something happens where builders kind of stop or delay a lot of their projects.

Brendon Ogmundson:

That happened after the financial crisis and then you kind of cut to a few years later and we have really low levels of supply because we're not you know, we don't have a consistent kind of pipeline of new development and the population keeps growing, the economy grows.

Brendon Ogmundson:

Some shock hits, some positive demand shock hits like lower rates, or the economy starts really picking up, for whatever reason, and all of a sudden you see prices absolutely spiraling out of control. It's happened multiple times in the past two decades and that's what we really want to avoid, which is why we want a consistent amount of supply hitting the market all the time Instead of these kind of up and down cycles. But we're unfortunately setting ourselves up for that exact situation right now, if development really starts to stall because of either input costs rising due to tariffs or the demand just isn't there because tariffs are causing a real weakness in the economy and underlying demand. So unfortunately it's kind of out of our hands as well. There's not a lot we can do about it. I think, obviously the government should exclude any building materials from retaliatory tariffs if that's the scenario we're in. But I'm not sure if they've announced anything like that and home sales.

Julia Pennella:

So it's small steps, but we definitely need more of an aggressive approach. And, at the same time, I love economics because it's so simple supply and demand. That's really the basis of it, and I think to your point. Yes, there's so much uncertainty of people not wanting to buy or sell right now just because they're holding on. They don't know if job loss is in their cards. The other element and we'll talk about this immigration policy has also impacted Canada's demand when it comes to our housing sector, bc and Toronto being the hot spots for immigration and settlement.

Julia Pennella:

But as we're talking about the big word of uncertainty, I want to point to a post you did on LinkedIn about the factors driving BC home sales, and what caught my attention on your post was a caption you paired with it and a graph is. You wrote quote uncertainty is more of a vibe than something that can be quantified, end quote. And you noted that it seems to be dragging down home sales, and I really love that framing because I think it really captures the mood right now. Can you unpack that a little bit Like how does the vibe of uncertainty actually impact the housing market and who do you think is feeling it most Is it buyers, sellers or developers.

Brendon Ogmundson:

Yeah, so uncertainty is a weird thing and that's kind of why it's like a mood or a vibe. You can try and measure it. There are measures of uncertainty, but what are you really measuring? Even the Economic Policy Uncertainty Index is just scraping like references in newspapers and media about uncertainty in the Economic Policy Uncertainty Index is just scraping like references in newspapers and media about uncertainty in the economy. So is that really measuring uncertainty? It's kind of the best we can do.

Brendon Ogmundson:

One thing I really like, though that kind of helps understand the impacts of uncertainty, is the Bank of Canada had a survey of workers in sectors, or across all sectors, but like especially in sectors most impacted by US trade or most exposed to US trade, and like what share of the workforce in those sectors is like really concerned about their job security, and it was in like the oil and gas sector. I think it was as high as like 70%. Like manufacturing and forestry was 50% 60%. So you have a lot of people who don't know whether they're going to be employed over the next year. Like that's real uncertainty, right? You don't know, you can't predict your future. Or even if you're a business, maybe you're looking to build a small business, looking to like open up like a small manufacturing outfit in like some strata industrial space or something, but now you don't know what your market is. You don't know what your pricing is going to be Like. That's real uncertainty. And when there's that level of uncertainty about what your cost might be, who your market is, you're just not going to make decisions. And I think that really comes through and at the kind of like household level that means you know you're looking to sell your home this year Maybe. Instead you're like well, I don't really like market conditions, I don't even get the price that we want. You're just not going to list If you're potentially looking at moving from rental to an ownership. You've scraped together a down payment and that's not an easy thing in a market like Vancouver or a market like Toronto. And now you're like well, I don't know what's going to happen to the market. People. I keep hearing there's going to be a recession. I might be able to lose my entire down payment. That just creates enough doubt and lack of confidence that people are just going to wait, and so I think there's a huge amount of pent up demand. We've had very slow sales for like two years. They were kind of getting back to normal. So when that uncertainty is over, I think we'll see sales really pop. But again, how do you measure a vibe Like, I don't know? We don't know when uncertainty is going to end?

Brendon Ogmundson:

And it's in my presentations lately I've been ending with a reference not super timely, especially with some of my audiences are on the younger side but a reference to this Twilight Zone episode from the 1960s and I think it's called it's a Good Life. It's about this town where this like eight-year-old boy has mind reading powers and the ability to like, if people displease him, send them into a cornfield where they disappear forever. Or at one point he turns someone into a human jack-in-the-box. It's very strange. It's Twilight Zone.

Brendon Ogmundson:

The town is constantly walking on eggshells and they have to think good thoughts all the time and tell him how great he's doing and how great the town is and how great everything is, and they can't even think for a moment that things are going poorly.

Brendon Ogmundson:

Or he sends them to a cornfield and unfortunately that's kind of like the situation we're in. Like we all have with us one person who has decided to make everything very uncertain and everyone's around him tells him how great he's doing and apparently, to get your way, you also need to tell him that he's great and this is all growing. Everything you're doing is great and that's the unfortunate situation we're in. So how does that end? I don't know. Job approval gets really low or the bond market gets really dissatisfied, as we saw after April 2nd to change some decision making, but I don't know. But this is unfortunately the situation that we're in and there's not like an obvious way that it ends, and that's unfortunately. That's the vibe and nobody likes it. I don't know why we're back in this place, but here we are.

Julia Pennella:

Yeah, so a few things I just want to say I love the Twilight Zone. I haven't seen that episode, but I think it very much is telling of how things are going and funny. You bring that up too. I have felt that in the political world, just like we're living in this dystopic Twilight Zone, we don't know what the next day is going to bring us. So it's really funny and I want to compliment you and I was going to say this I really appreciate your posts and your writing literature around economics because you incorporate memes. You incorporate these pieces that make it really palatable for people who don't necessarily understand economics. So I want to appreciate you for doing that and make sure you follow Brendan on LinkedIn to see all his comedic analysis.

Brendon Ogmundson:

Economics can be very dry. I try and make it a little bit more entertaining. Well, still, like I am on the dry, like I, if it were up to me. Generally like be like, hey, here are some fun equations, everyone, but I understand who the audience?

Brendon Ogmundson:

is that not everyone wants that. I'll sneak them in every once in a while, but it's like what's the another super timely reference about was is a spoonful of sugar. Why am I making references to like things from the 19. Is that the 50s? Is that Mary Poppins? I don't even like Mary Poppins. Anyway, helps the medicine go down. That's the.

Julia Pennella:

No, I think it's great because, yeah, I can be very convoluted with numbers and you kind of lose the audience. But when you break it down into those like bite-sized pieces, it's great. But you know, as we're talking about the broader economy, I've got a bit of a chicken and egg question for you. So we're dealing with high inflation, wages aren't keeping up with the cost of living. Cost of living just keeps going up and now, as we talked about it, there is a possible recession. So which comes first, inflation or recession? I mean, I'm thinking back to the 2008 financial crisis. Inflation wasn't really front and center the way it is, I feel, like now, but with the added layers of things like the trade war, you know, this feels very different. Can you help us make sense of all these different pieces and maybe how they fit together?

Brendon Ogmundson:

Yeah. So, like in the financial crisis example, we were at a place where inflation was running pretty close to the Bank of Canada's target. We had a huge shock to the economy that caused inflation to fall, which is the normal. What normally happens in a recession is that, because you have such a drop in demand, inflation tends to decline. In some cases it even turns briefly, briefly negative, like I believe it did during the financial crisis.

Brendon Ogmundson:

Covid the covid shock was very different because it impaired supply chains so much that we couldn't produce the amount of supply that we normally are able to produce, especially on like services and global supply chains, so some goods were unavailable as well. That causes prices to rise at the same time that the economy is really weak. And then you know, some of the inflationary impacts from COVID, I think, have really left a lot of like scar tissue on the Bank of Canada and really informs the way they're dealing with the potential for tariffs. So then we kind of knew and probably the majority of economists thought that the inflation we saw, which got to like 8 or 9 percent during COVID or after COVID we knew that it was like there was a majority of economists that called it transitory, which just meant it was going to be temporary. We'd have a one-time spike in prices and it would quickly fade. Instead, what happened is inflation got a lot higher than anyone thought it was going to be and it stayed at pretty high levels for much longer. And a lot of that it was still like supply side driven mostly. Some of it was like maybe too much stimulus from government, but most of it was on the supply side and that starts to feed into expectations. So if you're a household and gas shortage, refining capacities impaired, or you go to the grocery store and all of a sudden you're paying 10 to 20% more than you usually do, that starts to really impact your expectations about inflation. You're not thinking, oh, this is a temporary, one-time increase due to supply chains, right? Most people are just like wow, why are prices so high? And this happened all over the world. Every country had this weird thing where they would blame their government for inflation. It's happened in Canada, it happened in the United States, but it was a global phenomenon that was due to the impacts of COVID. But it was a global phenomenon that was due to the impacts of COVID. So because expectations got kind of unanchored from the Bank of Canada's 2% target, which is where they really want. That's why they have that target is to keep people's inflation expectations anchored. You had inflation just kind of drifting further and further from target, and the Bank of Canada had to be very aggressive in tightening to get inflation back down, which is kind of where we're at now.

Brendon Ogmundson:

With tariffs you're essentially. It's not the levying of tariffs in the United States that necessarily causes inflation in Canada, though it can. If domestic producers raise their prices. It's our retaliation. So if we retaliate on, we import a fair amount of the United States. If we retaliate by putting a tariff on those import, prices go to the store, prices rise. Sometimes domestic producers will also raise their prices because they can, and then you have what should be a one-time increase in prices. Right, it's, the tariff only hits once, and then, a year from now, like the price hasn't necessarily changed. So inflation the price level stays high, but inflation falls. The growth in the price level falls back to normal.

Brendon Ogmundson:

What they're really worried about, though, is that same effect we saw during COVID, where people see higher prices and that gets baked into their inflation expectations, and then they go to their employer and ask for higher wages, and you get this kind of spiral effect. That's what they're really worried about. So if you hear all the communications from the Bank of Canada lately, they're very concerned about inflation. They're one scenario in their most recent monetary policy report, with full kind of tariff effects, is a year-long recession and inflation running at 3%, so kind of like a junior stagflation. We have this thing called stagflation in the 70s where inflation was running like double digits while the economy is in recession. So it's not that, but it's inflation that's higher than target with a recession, which is a very abnormal situation for most recessions. So that's their sort of base case is for higher inflation and slower growth, which don't normally go hand in hand, but is sort of textbook of what's going to happen if you put tariffs on imports to Canada.

Brendon Ogmundson:

Interestingly, the Fed in the United States seems to be interpreting the impacts of tariffs as much more of a one-time phenomenon and something to look through maybe, Although at their meeting yesterday they did sort of their baseline forecast was for higher unemployment and higher inflation. So it's interesting we haven't had to deal with tariffs for a long time. So there's not a lot of like consensus on what the best route for a central bank is Like normally if the economy is going to be in a deep recession for a year, the Bank of Canada would cut rates. It's not as clear that that's their path. That would go down if inflation is also running a full point above their target. So it's a much murkier monetary policy situation.

Brendon Ogmundson:

And then on the fiscal side of things don't have a lot of fiscal room, Like BC is not. Bc is running a very large deficit with not even projection of our debt's GDP kind of bending back down. Federal situation's a little bit better, but we just came through, not that long ago, an environment where we had to spend a lot of that fiscal room, so there's not as much there. So if we fall into a recession this time around you've got on the monetary policy side a central bank that doesn't really want to lower rates much and is telling markets that monetary policy is not the right tool to fight a trade war, and you also have a government that doesn't have a lot of room to support the economy either. So hopefully we don't have that kind of worst case scenario of a year long recession. But you know, if we do, the policy implications on the sort of stimulus side are not super clear.

Julia Pennella:

And that's a wrap on this episode, but don't go too far. Brendan's sticking around for part two, where we dive even deeper into the BC housing market. We'll also talk about the growing generational divide in housing affordability, how parental help with down payments is quietly inflating the housing market, why our relationship with debt has totally shifted and how development charges are making affordability even harder to reach. You won't want to miss it. I'm your host, julia Piniella, and this is, let's Talk, politics. Catch you on the next one.