Blogs & Comment

Canada's economy too hot to last?

…even though the numbers are crummy.
The GDP figures released by Statistics Canada last week were widely presented as a good news/bad news proposition in the media. On the one hand, the numbers stunk — the economy grew at an annualized rate of just 0.3% in the second quarter. But, on the other hand, 0.3% is still growth, and suggest that Canada has so far eluded a technical recession (broadly though inaccurately defined, by everyone in general but no one in particular, as two quarters of economic contraction).
So should business-watchers fret, or breathe a sigh of relief? Well, as David Wolf, occasional columnist for Canadian Business, head of Canadian economics and chief strategist for Merrill Lynch Canada, recently pointed out, the situation for business might be more bleak than even the bleak GDP numbers suggest.
Government spending in Q2 accounted for a 1.0% increase in GDP — which means that nongovernment spending (by you, me, the corner store, the factory in the next county) shrankin the second quarter. Same situation in the previous quarter. Consider that such private sector activity accounts for about 80% of the economy, and you get the picture. It’s not pretty.
How long can Canadian governments delay a full-blown recession? That’s one question.
The other is, what would have happened if our governments, rather than sitting on surpluses for the past few years, had had the foresight to initiate meaningful, swift and smart tax cuts (ie, notthe GST reduction) back when they had the chance?
Government is keeping the good times going by spending more (and spending, by the way, has at the federal level been outpacing economic growth for years).Will this be an election issue? One can only hope…