Maybe it’s fatigue? Jim Flaherty and his staff at the federal finance ministry have been fighting the financial crisis for so long they think it still is 2010.
As Mr. Flaherty made his way to Mexico City Sunday for the last scheduled Group of 20 meeting of the year, the finance department issued this statement by the minister:
“While economic growth in Canada is projected to remain strong compared to other developed nations, Canada is not immune to international developments,” said Minister Flaherty. “Through our ongoing leadership role in the G20, our government will continue to call for measures that will address risks and persistent weaknesses in the global economy.”
Italics are mine. While a valid bragging point in the aftermath of the financial crisis, Canada no longer is an economic standout among its peers.
The International Monetary Fund identifies 35 countries as “advanced economies,” ranging from Australia to the United States.
According to the IMF, Canada’s gross domestic product will expand by a little less than 2 per cent in 2013. That bests only European economies coping with the recession in the euro zone. Australia, Estonia, Hong Kong, Iceland, Israel, South Korea, Malta, New Zealand, Norway, Singapore, the Slovak Republic, Sweden, Taiwan, and the U.S. all are forecast by the IMF to outpace Canada next year.
We are fetishists for accuracy in this business. (At least we should be.)
Mr. Flaherty can accurately say that Canada’s growth is projected to be strong compared to a group of recessionary European countries. He can no longer accurately put on positive spin on Canada’s mediocre economic performance by seeking out favourable international comparisons. At best, Canada is in the middle of the pack.
The point is not to diminish Canada’s advantages. Canada is growing more slowly, in part, because it has completed the recovery phase of its rebound from the financial crisis. Canada now is in a plain vanilla expansion, if only a modest one. The banking system is solid and companies are profitable. The unemployment rate is a little high, but not terribly so, at least by historical standards.
So what is the point? Only to make the following observation: By insisting on creating the impression that Canada’s economy is “strong,” Mr. Flaherty is undermining the case for making it stronger and more stable.
If Canada’s economy is so strong, why sign all these contentious free-trade agreements? If Canada’s economy is so strong, why bother with a national securities regulator? If Canada’s economy is so strong, then surely house prices will keep rising? If Canada’s economy is so strong, why worry so much about productivity? You get the idea: Mr. Flaherty risks creating a sense of complacency that works against the Harper government’s own economic agenda.
And let’s face it, Canada’s economy isn’t strong; it’s only ok.
The country performed relatively well in recent years because commodity prices surged, money was cheap, and the federal government’s stimulus plan pumped billions of dollars into the economy. That’s not a sustainable economic program. Commodity prices likely will stay high, but interest rates must rise eventually. Fiscal consolidation in Ottawa and the provincial capitals is one of the reasons that Canada will do well to scratch out growth of 2 per cent this year and next.
Peter Hall, the chief economist at Export Development Canada, has an aggressive call for growth in the U.S. next year of nearly 3 per cent. That’s way off the consensus. But when it comes to Canada, Mr. Hall is squarely with the majority, foreseeing growth of about 2 per cent.
There shouldn’t be such a big gap. Canada’s GDP tends to move pretty much in concert with that of its largest trading partner. But Mr. Hall reckons consumers have binged on about as much credit as their Canadian prudence will stand. If he’s right, that will restrain household consumption. (If he’s wrong, the economy could be facing a different problem.) Governments are cutting back. That puts the burden of growth on Canadian business, which, on the whole, is less competitive than its international rivals and lately is showing a diminished appetitive to invest.
Canada is facing significant economic challenges. They should be confronted with eyes wide open, not half shut.