Economic warning signs are flashing
TheStar.com – Opinion/Editorial Opinion
Published On Fri Sep 17 2010. Carol Goar, Editorial Board
The economic outlook has darkened since Parliament closed for its summer recess. What looked like a well-entrenched recovery when MPs left Ottawa in June has weakened into a precarious comeback as they return for their fall session.
The once-robust housing market has sagged. The trade surplus has vanished. And economists across the spectrum have slashed their growth forecasts. In the last eight days alone, the danger signals have come thick and fast.
• On Sept. 9, Statistics Canada reported that the country had chalked up a record trade deficit of $2.7 billion in July.
• The following day, StatsCan issued a dismal labour force report. The unemployment rate climbed to 8.1 per cent in August. The private sector shed jobs.
• This past Monday brought a double dose of bad news. The Canadian Payroll Association reported that six out of every 10 Canadians would be in financial difficulty if their paycheque were delayed for even a week. That was followed by a StatsCan report showing household debt had risen by 6 per cent during the recovery to a record $1.48 trillion.
• That was followed Wednesday by another monthly drop in manufacturing sales, with motor vehicles leading the way.
South of the border, President Barack Obama has pumped another $50 billion (U.S.) into his country’s sputtering economy, hoping a fresh injection of stimulus will encourage employers to start hiring. But forecasters see little prospect of an early turnaround.
In Paris, the Organization for Economic Co-operation and Development is advising its members “to postpone the withdrawal of monetary stimulus for a few months” in light of the increasing uncertainty.
There is no sign that Prime Minister Stephen Harper is contemplating a course adjustment. He admits “we are not quite where we want to be” and acknowledges he is concerned about developments in the U.S. But he remains committed to wiping out Ottawa’s $50 billion deficit in five years.
The opposition parties will return to the House Monday with a barrage of complaints and demands. They will demand that Bank of Canada governor Mark Carney stop raising interest rates, oppose next January’s planned increase in employment insurance premiums and warn that hundreds of local infrastructure projects will be left half-built if the Conservatives cut off funding on March 31, 2011, as scheduled.
While their attacks may erode confidence in Harper’s economic leadership, they don’t add up to a coherent fiscal strategy.
Nor are private economists offering much help. They’ve dropped hints and made tentative suggestions, but no one is providing clear advice. Avery Shenfeld, chief economist for CIBC World Markets, thinks the Bank of Canada will forestall its promised rate hike in October, without calling for a pause. His counterpart at BMO, Doug Porter, says policy-makers should “not lock in a hard stop on stimulus just yet.” Armine Yalnizyan of the Canadian Centre for Policy Alternatives would like to see Ottawa exchange its “targeted and temporary” stimulus for a long-term commitment to repair and upgrade the nation’s aging infrastructure.
Understandably, no one is willing to touch the delicate question of personal debt. If Ottawa cools consumer spending, which accounts for two-thirds of economic activity, it risks slowing — or throttling — the recovery.
The best Canadians can hope for this fall is that Harper will slow down and reassess his deficit elimination agenda in light of current economic conditions.
The more troubling scenario is that he will barrel ahead regardless of circumstances or economic logic. That has been the Prime Minister’s pattern on issues from the long-form census to the multi-billion-dollar expansion of Canada’s jails.
Thanks in part to Harper’s willingness to set aside his low-tax, small-government philosophy, Canada came out of the 2008-09 the recession faster, with more impetus, than any of its western peers. But now the pace is slowing and caution signs are flashing.
The last thing this nation needs is an abrupt dose of federal restraint.
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