Analyzing and forecasting Canada's economic prospects today is easy. The difficulty is accepting the troubling story.Canada’s third quarter experienced negative growth. Some indications are Q4 might be in positive territory, thereby avoiding a recession. The word 'recession' of course, is a technical term meaning two or more consecutive negative quarters of economic output. But whether we're in a recession or not, the more important point is the disappointing performance itself. Canada has many economic and social problems (which eventually join at the hip,) mostly self-made. For broader context, our country is not alone. According to the Commerce Department of the Eurozone, “the combined gross domestic product of the Eurozone's 20 members fell by an annualized 0.4% in the three months through September.” On the other hand, according to FP Posthaste, the US “stormed past expectations this year, with growth hitting 2.4%, up from 1.9% last year.”So, what is going on? The International Monetary Fund (IMF) blames fiscal policy and climate goals — reaching “net zero goals by mid-century will become increasingly costly, possibly raising public debt by 45 to 50% of GDP for a representative large emitting country, putting debt on an unsustainable path.” Global debt-to-GDP ratios are projected to rise by 1% a year from 2023 to 2028, faster than foreseen before the pandemic. “These headwinds complicate efforts to tackle climate change.”The IMF made a further interesting observation to this fundamental dilemma. As if speaking to Canada, carbon pricing — often unpopular — transforms it into a “trilemma”, choosing among climate goals, fiscal sustainability and political feasibility.HOW WE CAN'T GET OUT OF OUR OWN WAYFederal government choices are as questionable as the results. Inheriting a relatively clean balance sheet from the previous administration, our prime minister has disproved his own motto that “budgets balance themselves,” by increasing Canada's gross debt-to-GDP ratio at an alarming rate since 2015, now exceeding 100%. According to research by the Fraser Institute, the government sector accounts for 86% of new jobs since the pandemic began.Another publication, again by the Fraser, points out that the Ottawa-Gatineau area enjoyed the highest employment incomes in the country in 2019. No doubt that has continued and that gap increased between federal government spending and the rest of us. With proposed legislation disallowing replacement workers during a work stoppage, the preferred position of the public service, a key component of Laurentian Elite power, will likely increase.The US Biden administration rattled the world with its misnamed Inflation Reduction Act, a green-energy subsidy package of unprecedented scale. A recent Wall Street Journal analysis shows 60% of that spending to date is for companies from South Korea, Japan and China and 15 of the 20 largest such investments, nearly all battery factories, involve foreign businesses.Hence Canada's questionable response of our own subsidy packages, also for batteries and EVs. The deficit grew another $15 billion in the third quarter. Subsidies are free money to the recipients, but not free to taxpayers who ultimately pay for it all.In an interview recorded on November 24, CD Howe CEO Bill Robson told Brian Lilley of the Toronto Sun, that the Trudeau Liberals are choking off desperately needed income, as, except in Ottawa, wages are losing ground. Business indicators are the worst since the 1940s, unfunded pensions are soaring, spending keeps rising, and enormous immigration flows have led to a housing shortage. (To that I would add, also stress on the already struggling health care system.) Robson concludes that Canada “is going down a very strange path”.Canada has a growing productivity problem. In a recent report by Doug Porter, the Chief Economist of BMO, comments that Canada has lagged the US for decades. But recently further underperformance has reached the unusual point where productivity is even declining, dragging down per capita GDP. Porter further points out Canada has fallen below most of western Europe and Australia, based on OECD (Organisation for Economic Co-operation and Development) data up to 2021.Porter’s quote includes “The sustained decline in recent years is without precedent in the post-war era.” (As these pages have pointed out in the past, the OECD forecasts Canada last among its 38 member countries, over both 10 and 40 year periods.) Porter poses the important question “rather than force-feeding capital spending through heavy-duty subsidies, policymakers should address the fundamental question why businesses are so reluctant to invest in Canada?”This is a segue to the energy sector where major companies continue to sell assets and companies, on their way out the door. Just imagine the lost benefit of two huge, cancelled projects — Northern Gateway and Frontier Oil Sands. A study by the Montreal Economic Institute found Northern Gateway would have increased Canada’s GDP by $3 billion and provided 907,000 person years of employment (many aboriginal) and $98 billion in government revenues, foreign exchange, a stronger dollar and other ongoing benefits.The rejection and slow progress of oil pipelines lowers export prices as molecules compete for limited access. This widens the “differential,” a price discount costing Canadians tens of billions of annual dollars. Exporting at least 3 million barrels a day to the US, a wider differential of $10 dollars per barrel, for example, equates to $30 million per day, more than $11 billion per year.This wealth transfer to Americans provides no return to Canadians.FORECASTSTD Bank economists, led by Beata Caranci, expect final growth to slow to 1.1% in 2023 and drop to 0.5% in 2024.Flamboyant economist David Rosenberg, in a recent Globe article claims Canada is already in a recession. In his opinion, it will be “far more severe” than south of the border, although “that won’t be a pretty picture, either.” “We have a government that caused the economy to become addicted to debt and excessive house price inflation and papered over these problems by promoting an immigration boom.”The annual forecast of national law firm Bennett Jones believes after a slow 2023, Canada's economy will soon grow faster, by about 2.9% from Q3 2024 to the end of 2025. It also focuses on the need for innovation to lift productivity growth and raise per capita income.Linking back to global dynamics, Lionel Shriver of London Spectator magazine wrote “we've entered an era of unelected bureaucratic imposition that's only going to get worse… bans on the sale of new petrol cars by 2030 and gas boilers in new homes by 2025 that no one voted for are just the beginning of a self-righteous totalitarian tinkering with their daily lives. They made some mockery of the notion that democracies are governed by consent.”Not long after these insightful comments in Britain, our Minister of the Environment fired another broadside at Canadians, mandating 100% of sales of electric vehicles by 2035.Self-righteous totalitarian tinkering with our daily lives, indeed.The beauty of markets is people are free to make choices. If there really is a climate crisis and EVs are a solution, then bottom up choices will emerge, an outcome the superior zealots think should be made by them. As counter intuitive as it is true, the disorder of free markets sorts out complexity much more efficiently than the carnage of top down instructions from self-imagined experts.Our much heralded health care system, a source of Canadian hubris, took decades to prove that point, as millions of suffering Canadians attest.The dismal picture of Canada’s faltering climate change economy appears to be playing out more quickly; I am not so sure about any decline of hubris.
Analyzing and forecasting Canada's economic prospects today is easy. The difficulty is accepting the troubling story.Canada’s third quarter experienced negative growth. Some indications are Q4 might be in positive territory, thereby avoiding a recession. The word 'recession' of course, is a technical term meaning two or more consecutive negative quarters of economic output. But whether we're in a recession or not, the more important point is the disappointing performance itself. Canada has many economic and social problems (which eventually join at the hip,) mostly self-made. For broader context, our country is not alone. According to the Commerce Department of the Eurozone, “the combined gross domestic product of the Eurozone's 20 members fell by an annualized 0.4% in the three months through September.” On the other hand, according to FP Posthaste, the US “stormed past expectations this year, with growth hitting 2.4%, up from 1.9% last year.”So, what is going on? The International Monetary Fund (IMF) blames fiscal policy and climate goals — reaching “net zero goals by mid-century will become increasingly costly, possibly raising public debt by 45 to 50% of GDP for a representative large emitting country, putting debt on an unsustainable path.” Global debt-to-GDP ratios are projected to rise by 1% a year from 2023 to 2028, faster than foreseen before the pandemic. “These headwinds complicate efforts to tackle climate change.”The IMF made a further interesting observation to this fundamental dilemma. As if speaking to Canada, carbon pricing — often unpopular — transforms it into a “trilemma”, choosing among climate goals, fiscal sustainability and political feasibility.HOW WE CAN'T GET OUT OF OUR OWN WAYFederal government choices are as questionable as the results. Inheriting a relatively clean balance sheet from the previous administration, our prime minister has disproved his own motto that “budgets balance themselves,” by increasing Canada's gross debt-to-GDP ratio at an alarming rate since 2015, now exceeding 100%. According to research by the Fraser Institute, the government sector accounts for 86% of new jobs since the pandemic began.Another publication, again by the Fraser, points out that the Ottawa-Gatineau area enjoyed the highest employment incomes in the country in 2019. No doubt that has continued and that gap increased between federal government spending and the rest of us. With proposed legislation disallowing replacement workers during a work stoppage, the preferred position of the public service, a key component of Laurentian Elite power, will likely increase.The US Biden administration rattled the world with its misnamed Inflation Reduction Act, a green-energy subsidy package of unprecedented scale. A recent Wall Street Journal analysis shows 60% of that spending to date is for companies from South Korea, Japan and China and 15 of the 20 largest such investments, nearly all battery factories, involve foreign businesses.Hence Canada's questionable response of our own subsidy packages, also for batteries and EVs. The deficit grew another $15 billion in the third quarter. Subsidies are free money to the recipients, but not free to taxpayers who ultimately pay for it all.In an interview recorded on November 24, CD Howe CEO Bill Robson told Brian Lilley of the Toronto Sun, that the Trudeau Liberals are choking off desperately needed income, as, except in Ottawa, wages are losing ground. Business indicators are the worst since the 1940s, unfunded pensions are soaring, spending keeps rising, and enormous immigration flows have led to a housing shortage. (To that I would add, also stress on the already struggling health care system.) Robson concludes that Canada “is going down a very strange path”.Canada has a growing productivity problem. In a recent report by Doug Porter, the Chief Economist of BMO, comments that Canada has lagged the US for decades. But recently further underperformance has reached the unusual point where productivity is even declining, dragging down per capita GDP. Porter further points out Canada has fallen below most of western Europe and Australia, based on OECD (Organisation for Economic Co-operation and Development) data up to 2021.Porter’s quote includes “The sustained decline in recent years is without precedent in the post-war era.” (As these pages have pointed out in the past, the OECD forecasts Canada last among its 38 member countries, over both 10 and 40 year periods.) Porter poses the important question “rather than force-feeding capital spending through heavy-duty subsidies, policymakers should address the fundamental question why businesses are so reluctant to invest in Canada?”This is a segue to the energy sector where major companies continue to sell assets and companies, on their way out the door. Just imagine the lost benefit of two huge, cancelled projects — Northern Gateway and Frontier Oil Sands. A study by the Montreal Economic Institute found Northern Gateway would have increased Canada’s GDP by $3 billion and provided 907,000 person years of employment (many aboriginal) and $98 billion in government revenues, foreign exchange, a stronger dollar and other ongoing benefits.The rejection and slow progress of oil pipelines lowers export prices as molecules compete for limited access. This widens the “differential,” a price discount costing Canadians tens of billions of annual dollars. Exporting at least 3 million barrels a day to the US, a wider differential of $10 dollars per barrel, for example, equates to $30 million per day, more than $11 billion per year.This wealth transfer to Americans provides no return to Canadians.FORECASTSTD Bank economists, led by Beata Caranci, expect final growth to slow to 1.1% in 2023 and drop to 0.5% in 2024.Flamboyant economist David Rosenberg, in a recent Globe article claims Canada is already in a recession. In his opinion, it will be “far more severe” than south of the border, although “that won’t be a pretty picture, either.” “We have a government that caused the economy to become addicted to debt and excessive house price inflation and papered over these problems by promoting an immigration boom.”The annual forecast of national law firm Bennett Jones believes after a slow 2023, Canada's economy will soon grow faster, by about 2.9% from Q3 2024 to the end of 2025. It also focuses on the need for innovation to lift productivity growth and raise per capita income.Linking back to global dynamics, Lionel Shriver of London Spectator magazine wrote “we've entered an era of unelected bureaucratic imposition that's only going to get worse… bans on the sale of new petrol cars by 2030 and gas boilers in new homes by 2025 that no one voted for are just the beginning of a self-righteous totalitarian tinkering with their daily lives. They made some mockery of the notion that democracies are governed by consent.”Not long after these insightful comments in Britain, our Minister of the Environment fired another broadside at Canadians, mandating 100% of sales of electric vehicles by 2035.Self-righteous totalitarian tinkering with our daily lives, indeed.The beauty of markets is people are free to make choices. If there really is a climate crisis and EVs are a solution, then bottom up choices will emerge, an outcome the superior zealots think should be made by them. As counter intuitive as it is true, the disorder of free markets sorts out complexity much more efficiently than the carnage of top down instructions from self-imagined experts.Our much heralded health care system, a source of Canadian hubris, took decades to prove that point, as millions of suffering Canadians attest.The dismal picture of Canada’s faltering climate change economy appears to be playing out more quickly; I am not so sure about any decline of hubris.
