Prime Minister Stephen Harper yesterday played down bleaker economic predictions from former Bank of Canada Governor David Dodge, saying forecasts are "all over the map" right now - though conspicuously absent from his latest remarks was last week's controversial assertion that this country will emerge from recession faster than its peers.
Mr. Harper stood by his relatively confident take on the Canadian economy yesterday despite Mr. Dodge's forecast in The Globe and Mail that Canada and the world are facing a long and deep recession that will alter the nature of capitalism.
However, Mr. Harper's continued assurances that Canada is particularly well positioned to weather a global recession suffered another blow yesterday when a senior bank economist warned that Ottawa and the Bank of Canada are exaggerating the country's ability to cope with the downturn.
Douglas Porter, BMO Nesbitt Burns deputy chief economist, said Canada has received "lavish global praise" for the fact its banks have emerged unscathed from the global financial meltdown. But this fact is being oversold, he said.
"Many have in turn torqued this and other fundamentals to assert that this leaves Canada relatively well placed in this [economic] cycle - including the federal government, the International Monetary Fund and the Bank of Canada," he said.
"Amid all the well-deserved back patting is the rather uncomfortable fact that Canada's economic indicators are now deteriorating nearly as quickly as their U.S. counterparts."
He said employment in Canada has declined at almost the "same sickening" pace as the U.S. over the past four months, and auto sales and housing are "pulling a pale imitation of the horror show south of the border" as this country gets "dragged along for the ride in the downturn" afflicting the United States.
Mr. Harper defended his outlook after a $10-million announcement for young entrepreneurs in Toronto yesterday, saying he acknowledges Canada won't recover until the U.S. and world financial systems significantly improve but suggesting he's not putting much stock in forecasts these days. "We have never seen a period, in my time in public life, where forecasts have been so all over the map and individuals have changed their own forecasts so quickly."
He was adamant that the healthy banking system and government balance sheets will stand Canada in good stead - denying this outlook is overly optimistic.
"It's not rosy or unrealistic. It is very realistic, but it is not negative and pessimistic and without hope and without policy," Mr. Harper said.
He said Canadians have to retain hope. The Tory Party's rivals are not helping by "attacking the economy" with pessimistic talk, the Prime Minister said. "That is what the opposition offers and I won't go there."
One message Mr. Harper didn't repeat yesterday was his March 10 prediction that Canada would recover from recession ahead of its peers. Economists have since warned it's an exaggeration to say Canada's rebound will occur ahead of a U.S. recovery from the global recession.
"We will make sure its effects here are the least severe, and we will come out of this faster than anyone and stronger than ever," Mr. Harper told a Brampton, Ont., audience last week during a state of the nation speech on the recession that urged Canada to stop being modest about its sound banking system.
But economists say that healthy banks and government books aside, the overwhelming factor in determining when jobs and growth will bounce back in a country so massively dependent on foreign trade is outside demand for Canadian goods.
Mr. Porter blames three vulnerabilities in Canada: cars, commodities and construction, saying deepening slumps in these sectors "help explain why there will be precious little separation between the Canadian and U.S. economies" over this year and next.
Canada's economy is highly dependent on auto manufacturing and the extraction of commodities from oil to metals. Car making accounted for 2 per cent of economic output before the plunge in North American auto sales and only 1.2 per cent in December "with a deeper dive on tap for January," Mr. Porter said. Most measures of commodity prices have been carved in half from mid-2008 peaks.
The stalling of these two economic engines is threatening the construction industry, which is particularly vulnerable after a boom that drove jobs in the sector to a record high last year and is already subsiding, with 86,000 positions disappearing in the past three months alone.
While Mr. Harper refrained from criticizing Mr. Dodge yesterday, Tories were privately furious at the former central banker's decision to speak publicly about the Canadian economy and to criticize current policymaking.
"Dodge, along with virtually every other economist, didn't see this coming. If you are going to snipe from the sidelines, it would be a lot more credible if they had predicted any of what has transpired," a senior government official said.
"They missed it: they missed the largest recession since the Great Depression."
Carole Taylor, the chair of Ottawa's economic advisory council, said there's no unified consensus among her group on when the economy might recover. "I would hope by this time next year, we would be starting to see some light," she said.
Mr. Harper yesterday also dismissed Mr. Dodge's contention in a Globe and Mail interview that the Tories created a structural deficit in Ottawa's 2007-2008 fiscal year after chopping the goods and services tax by two percentage points.
(A structural deficit - of the kind that plagued Ottawa in the 1980s and early 1990s - is one that persists over the long term even when the economy is healthy and growing.)
"That's just wrong," Mr. Harper said.
With a report from Ian Bailey
in Vancouver
