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June 11, 2014

 

Canadian economic outlook looks good

Country on-track to grow 2.5 percent and 2.7 percent during 2014 and 2015 according to the OECD

 

To the average Joe, the Canadian economy doesn’t look that great. According to Statistics Canada’s Labour Force Survey the 25,800 jobs created during May, did not even make up for the 28,900 lost during April. Worse the new jobs were all part-time.

 

Long-term investors can’t be too satisfied either. The Toronto Stock Exchange’s benchmark index, which did hit new highs in recent days, is only slightly ahead of where it was six years ago just before the crash. So those who have been along for the entire ride have gained little. As if that were not enough the Harper Government, which ran up the national debt to keep the economy afloat, is only scheduled to get the books back in balance next year.

 

Yet according to one international expert, Canadians ought to look at the bright side. “In today’s global economic environment this is as good as it gets,” said Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, this week at the International Economic Forum for the Americas where the OECD just released a massive report on the Canadian economy.

 

Gurria lauded Canada’s banks for their tight standards and their policy of sticking to lending (as opposed to using depositor funds to engage in speculative activity) and its regulators for keeping the country’s housing market under control, as key factors in the country’s “fairly solid,” economic growth. This despite weak non-commodity exports, depressing business sentiment and a widening current account deficit. The OECD chief also had kind words for federal government’s efforts to tighten lending standards.

 

A positive outlook going forward

In fact the OECD’s forecast of 2.5 percent real GDP growth in 2014 and 2.7 percent in 2015 paints a fairly rosy outlook. “We see no generalized crash in housing prices,” says Gurria, brushing aside those who warn that residential real estate is overvalued relative to rents and incomes, and that households are carrying too much debt. “Canadians know they have done well.”

 

The announcement earlier this month that the United States, - Canada’s largest export goods client, - created 217,000 jobs during April was also good news. As Andrew Grantham, an economist at CIBC notes, this, when coupled with significant job creation in April, signals a strong rebound in GDP growth during the second quarter.

 

China, another major customer of Canada’s export goods – particularly unprocessed raw materials – got good news of its own recently. The World Bank estimated that the size of its economy at $13.5 trillion in purchasing power parity terms during 2011, just behind the United States (at $15.5 trillion). That’s far higher than the $7.3 trillion GDP market exchange rate total that experts generally used when assessing China’s impact.

 

That said, the OECD did suggest that Canada tighten its mortgage insurance practices by trimming the role played by the Canada Mortgage Housing Corporation. One possible first step could be to have the government agency cover only part of bank’s and other lender’s losses in the event of a mortgage default, which would give them a greater incentive to streamline lending standards. However the longer-term goal says the OECD should be to privatize the CMHC.

 

 

peter@peterdiekmeyer.com

 

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