Economy looms as 2015’s big issue
TheStar.com – opinion/commentary
Jun 25 2013. By: Edward Greenspon, Columnist
Five years after the onset of the Great Recession, Canada’s economy still feels shaky and vulnerable. Growth is choppy. Youth unemployment and underemployment are soul-destroying. Business investment is grudging. Public debt has grown from molehills back into mountains. Household borrowing, despite official cautions, is through the mortgaged roof.
Against this backdrop, the new governor of the Bank of Canada gave his inaugural speech last week, imploring businesses to fire up investment and export efforts. But business people aren’t policy-makers acting out public goods. They’re preservationists, and right now, as Governor Stephen Poloz noted, they lack the requisite confidence to go long on the future.
In 2008, when much of the rest of the world economy was sunk by a ruptured credit bubble, Canada emerged as a relative survivor. Unlike the U.S. and Europe, we had built enough resilience into the system to ride out the storm. This good fortune could be traced to several factors: a low debt legacy left behind by the Chrétien-Martin Liberals; prudent banking regulation; a tardy embrace of the subprime mortgage fad, leaving lenders insufficient time to wreak real damage. So we were lucky and we were good. After the bullheaded December 2008 economic statement-cum-budget, the Harper government got with the policy times and basked in international glory.
It’s always difficult to determine whether an economy is half-empty or half-full. Certainly, last month’s job creation numbers were cause for optimism and first-quarter growth was on the upswing. Plans look on course to eliminate the federal deficit in 2015. But five years on, our reserves of resiliency are running dangerously low. There’s little room for manoeuvre should another shock come our way.
In the highly unusual type of “balance sheet recession” the world has experienced, the point is for the public sector to pump tons of stimulus into the economy while private players take a timeout and rebuild their finances. That’s what has happened in the hard-hit United States, where banks have bounced back, personal debt has fallen and house prices are rising again.
But households in Canada never paused. Their combined debts now stand at an astronomical 165 per cent of disposable income, similar levels to the U.S. at the peak of its folly. Canadians can only get away with this because interest rates are nearly subterranean. Once rates rise or housing prices fall, trouble will find us. On a recent visit to Canada, the pro-stimulus economist Paul Krugman expressed concern that Canada is primed to take some kind of hit.
With indebted governments now suffering diminished capacity as first responders, policy-makers are intent on bucking up a hesitant private sector. Although corporate balance sheets are in relatively good shape, business people tend to be excessively squeamish about global uncertainty. Moreover, key business drivers look dicey. We all now understand the policy hash governments and industry have made of the oil and gas sector. Our problems getting supply to markets are accompanied by a very fundamental demand-side shift in the United States. Keystone or not, shale gas and shale oil will increasingly displace Canadian imports.
Less well known is that Canada is receiving a decreasing share of auto investment in the aftermath of the 2008 bailouts — about 5 per cent of the North American total, a third of normal levels. This translates into less product to export and fewer jobs in the industrial heartland. Meanwhile, despite all the fanfare over trade agreements, Canada still hasn’t completed a single one within growth-oriented Asia.
We are a trading nation selling too little. We have neither diversified markets adequately nor moved our mix of exports satisfactorily beyond commodities. The OECD regularly places us in the bottom half of innovation nations. Nearing our 150th birthday, we are looking yet again for a recovering U.S. economy to lift us up and for the world to knock on our door for minerals and foodstuffs.
The past few months have produced a colourful carnival of scandal and near-scandal in national politics. But by the time we get to the 2015 federal election, we may well be back to the economy, stupid. Justin Trudeau suffers from the absence of an economic track record. Stephen Harper may suffer from the presence of one.
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