Canada's Economic Troubles
Recession Lingers and Recovery Will be Uneven
Ontario used to be the engine of Canada’s economy. Not anymore. Alberta with its oil and gas revenue has emerged as the country’s economic leader. But, as the money from fossil fuels makes the nation as a whole wealthier it drives up the value of the Canadian dollar. This makes southern Ontario’s manufactured products more expensive in the United States and causes order books to stand empty and workers to be laid off.
But, the good news is that the pace of decline is slowing. And, most economists are saying Canadian economic activity will return to growth in the fourth quarter of 2009.
But that’s small comfort for many, and the financial picture is still cloudy, with occasional sunny moments.
Decline of Economic Activity Slowing Down
In July 2009, International Monetary Fund (IMF) predicted that Canada’s economy is set to outperform nearly all industrialized countries this year and next. The IMF suggested the world economy is starting to pull out of the recession.
It said the global economy will shrink 1.4% this year, but growth of 2.5% is expected in 2010. And, it expects Canada’s economy to contract the least among industrialized nations this year, with a drop of 2.3%, compared with 3.8% among all advanced economies. But by 2010, the Canadian economy is expected to grow by 1.6%, placing it second among advanced nations after Japan’s expected 1.7% gain.
Government Spending Racks up Huge Deficits
In a July 2009 report, Canada’s parliamentary budget officer, Kevin Page, revealed some troubling numbers. He predicted that the recession will sink the federal government into a $155.9 billion hole over the next five years, almost twice the accumulated $84.9 billion deficit estimated by the federal budget in January. Mr. Page figures that by 2013-14, Canada will still have a $16.7 billion annual deficit, even though the Conservative government says there will be a surplus by then.
The report shocked many with estimates of hundreds of thousands of job losses over the next five years, with between 190,000 and 270,000 fewer Canadian jobs in 2009 than estimated in the budget. For 2010, it predicts between 200,000 and 500,000 fewer jobs than the government has calculated. And, even in the years 2011-2014, there are expected to be between 100,000 and 380,000 fewer Canadian jobs each year than the government assumes.
Innovation is the Way out of Trouble
No wonder the Conference Board of Canada gave Canada a mediocre C grade in key areas such as labour productivity, income per capita, and unemployment. The Board’s July 2009 report card ranked Canada 11th among the world’s 17 wealthiest nations for 2008. It fell behind Norway, Switzerland, the Netherlands and Austria but ahead of Belgium, Germany, and Japan. On the plus side, it scored better grades for inflation and gross domestic product growth.
The Board’s senior vice-president and chief economist Glen Hodgson said the report wasn’t bad news, but that Canada could improve its standing by working toward a more innovative economy. A news report quoted Mr. Hodgson as saying that the federal government helped boost the economy with billions of dollars in stimulus spending. However, he called for a plan to climb out of deficit as soon as the economy rebounds. He predicts that Alberta and the western provinces will recover relatively fast, but Ontario will find it tougher to balance the books and could be struggling with a structural, long-term deficit.
Factory Decline in Ontario Likely Permanent.
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