Charles St-Arnaud, a former Bank of Canada economist who now works at Nomura Securities Co. Ltd. in New York, has spent some time trying to get inside the heads of the policy makers at his former employer.
If he's right, Canada's central bankers are exhausted and alone; exhausted because they are reaching the limits of what they can reasonably do to keep the country's economy afloat, and alone because no one seems to want to take a turn at driving economic growth.
Mr. St-Arnaud, in new outlook, predicts growth of 1.3 per cent in 2013, which would be the weakest in memory if not for the 2008-2009 recession.
Excluding the financial crisis, Canada last recorded economic growth of less than 1.3 per cent in 1992, when the country was climbing out of a recession, according to International Monetary Fund data.
Back in 2010, Canadian officials liked to boast about how well Canada had weathered the financial crisis. Those were heady days for the country's "boring" banks, "cautious" executives, and "prudent" finance ministers. Now, those attributes arguably are delaying a return to stronger growth.
Government expenditure shrunk 0.5 per cent in 2012, and will grow only 0.6 per cent in 2013 and 0.3 per cent in 2014, according to Mr. St-Arnaud.
Exports collapsed last year and likely will recover only slowly. Mr. St-Arnaud predicts net trade will subtract 0.2 percentage points from growth in 2013 and add 0.3 percentage points to GDP growth in 2014. He says there is little reason to expect much from business investment. Statistics Canada's annual survey of investment intentions indicates that non-housing expenditure will increase only 2.2 per cent this year. And imports of capital goods have been weak for several months, another indicator that Canadian companies are less than enthusiastic about deploying their cash on upgrades.
Global investors are waking up to Canada's less-than-stellar prospects.
The Canadian dollar has dropped below par with the U.S. currency. The possibility of an interest-rate cut at the Bank of Canada has entered the conversation.
Mr. St-Arnaud has little good to say about the Canadian economy. But he isn't predicting lower interest rates – not so much because he doesn't think the economy needs help, but because he thinks the central bank has already done all it reasonably can do.
Canadian interest rates have been ultra-low for four years. The idea was to stoke domestic demand that would offset the drag from weaker exports. The policy worked. Some 60 per cent of Canada's economic growth since the end of the recession has come from household spending, according to Mr. St-Arnaud.
But that well is running dry. Household debt at more than 150 per cent of disposable income is part of the reason; there is every reason to think households will start paying off debt. Another reason domestic spending will contribute less to GDP is that households are running out of things to buy. The Bank of Canada's low-interest rate strategy was meant to induce Canadians into "bringing forward" purchases that they would have made later.
Lower interest rates can't do much about that. Mr. St-Arnaud also reckons the Bank of Canada will remain wary of reflating a housing market that only recently has cooled enough to stop the central bank from worrying about a U.S.-style financial crisis. An interest-rate cut easily could trigger a new wave of borrowing, and it would probably take the prospect of recession to force the Bank of Canada to reverse course.
Governments technically could take the baton from the central bank. With business investment frozen, there even could be strong case made for fiscal stimulus. Mr. St-Arnaud observes that the banking system back home in Canada is strong and government budget deficits are relatively small. But he also observes that from Finance Minister Jim Flaherty on down, politicians are more inclined to cut than they are to spend.
The bottom line for Mr. St-Arnaud: Canada's economy will continue to struggle, forcing the Bank of Canada to keep interest rates at 1 per cent until the middle of 2014.
That's considerably longer than anyone imagined back in those heady days in 2010.