WHILE CANADA’S ECONOMY HAS PERFORMED WELL, IT’S STILL IMPORTANT TO KEEP THINGS IN PERSPECTIVE
It is often claimed — rightly, to an extent — that Canada has fared the past few challenging years much better than other wealthy countries.
Job numbers, the fiscal outlook, and overall growth have all stacked up well on the surface when compared to our G7 counterparts.
The federal government does not miss an opportunity to remind us how much better off we are here than anywhere else. And there is some truth in this: Canada remains one of the best places in the world in which to live and work.
But under scrutiny, the claim that we are head and shoulders above the rest of the developed world does not quite hold up. Notwithstanding a very strong rebound in our own sector and record new car sales in 2013, developments this year especially, are making it harder and harder to pound the drum of relative outperformance in the Canadian economy.
First, the good news. Canada has grown more since 2007 than its G7 counterparts. With only about six per cent total growth in the past six years, Canada is well ahead of the field. Germany and the U.S. have grown about 3.5 per cent over that period, which includes the recession and subsequent (weak) recovery, and the other four countries in the G7 (Italy, France, Japan, and the UK) are still well below 2007 output levels.
GOOD, BUT NOT GREAT
We’ve also been strong in overall job creation over the past few years. Since 2009 we have the strongest pace of job creation among the G7 group of wealthy developed countries, though at only about six per cent total job growth in four years it has not been particularly spectacular. As with GDP growth, our job creation performance in recent years has been just strong enough to put us at the head of an unimpressive class.
If that class is expanded, the numbers begin to look less impressive still. Include some Western European countries not in the G7 in the mix, and we’re at best middle-of-the-pack. At 7.2 per cent, our unemployment rate is three percentage points higher than the Netherlands and more than double the rock-bottom level in Norway. Denmark also has us beaten on this important indicator, though by a smaller margin. Within the G7, Germany and Japan both have lower national unemployment levels than we do. And on the overall economic growth score, Sweden has been well ahead of us throughout the crucial (and oft-cited) period of 2009-2012.
And it is there — GDP growth — where we will see the sharpest slowdown this year and next. Though the early part of the recovery was reasonably strong on this front for Canada, this year and next we’re likely to see growth slow down to the one to 1.5 per cent range. This will not be nearly enough to bring unemployment down in the context of a growing labour force, and may send it back up again into the mid-seven per cent range in the next year.
SHORT TERM SLOWDOWN
In each year since the recovery began, we’ve seen our growth rate slow down; from 3.4 per cent in 2010 to 2.5 per cent in 2011 to just 1.7 per cent last year. Tailwinds like a strong U.S. recovery and continued low interest rates will not be enough to counter headwinds such as a still-inflated housing market and high consumer debt levels in the short and medium term. Growth is likely to slow as a result.
All is not lost, however. Though growth is now stronger in the U.S. than here, we do not have anything close to the long-term structural unemployment problems that they are facing. While Germany has a lower unemployment rate than we do, they remain the paymasters in a European Union still struggling to forge a functioning monetary bloc, and are slowly coming to the realization that some of the Union’s weaker members will require further bailouts.
And even weak growth has an upside: indebted consumers and households aren’t likely to see substantial interest rate hikes as long as growth is subpar. Set against these challenges faced by some of the countries to which we are often compared, Canada’s outlook begins to look more positive.
Personally I’d still rather live in Canada than anywhere else in the world. And it’s true our economic performance over the past five years has been better, in many ways, than that of most other countries. But the next time you hear someone claim we’re miles ahead of the rest of the pack, arm yourself with a little data. It may offer a much-needed reality check.
