8 September 2008

Puzzling economy awaits new PM

The following article is excerpted from the 8 September 2008 edition of “globeandmail.com”.

As Canadians head into their third federal election in four years, they're unlikely to hear the debate on economic issues most likely to assure sustained prosperity for the nation, say experts canvassed by the Star...

The deteriorating health of the Canadian economy is reflected in recent polls, in which Canadians now rank the economy ahead of health care and the environment as their chief concern. The Tories have signalled that they will run on a record of good economic stewardship.

That may be a tough argument to make. The Harper government can't claim credit for most of the past decade of consecutive budget surpluses. Indeed, the current erosion in Canada's fiscal position may result in a budget deficit next year.

"We have to ask ourselves if we can tolerate a deficit if we get into heavy weather," says Doug Porter, economist at BMO Capital Markets. "The outlook for most world economies is for continued stagnation through next year, including the United States, our biggest trading partner. We don't see a recovery in the U.S. housing market until 2010, and we're projecting U.S. GDP growth of only 1.0 per cent next year. That's going to limit our growth."

In the past two years, more than 100,000 manufacturing jobs have been lost in the Central Canada-based manufacturing heartland.

Canada now is experiencing its weakest GDP growth in 17 years....

There is softness in the job market across the country, while house values have begun slipping even in prosperous Alberta.

The commodity boom that cast a halo over the entire economy burst over the summer, as a global slowdown has kicked in. Crude oil prices have plummeted from a July peak of $147 (U.S.) per barrel to below $109 (U.S.). Natural gas prices are down 41 per cent since June. And metals are coming off their highs, as well, with copper prices down 20 per cent since July. As a result, our once mighty "petrodollar" has slipped from its November peak of $1.10 (U.S.) to a current 93
cents, raising the cost of imports.

"For too long, we allowed high commodity prices to make us feel wealthy," says Glen Hodgson, chief economist at the Conference Board of Canada. "In a perfect world, we'd have an election campaign that debated how to improve our lagging productivity, which any economist will tell you is the key to sustainable prosperity."

Anne Golden, Hodgson's colleague as president of the Conference Board, identifies steps needed to secure prosperity beyond the next few election cycles.

They include enhanced labour mobility, a credentialing system that more rapidly integrates skilled newcomers, along with measures to improve health care....

Chronic neglect of infrastructure, a major factor in national productivity, also is holding us back....

Yet, while the issue is gaining traction to the south it has yet to claim much attention in Ottawa. ...

"We've had very weak productivity growth in recent years. In fact, this year we'll have negative productivity growth."...