Total Pageviews

Tuesday, February 22, 2011

Stephen Harper and the Great Recession

by Andrew Jackson Chief Economist; National Director, Canadian Labour Congress.

This is a very interesting article by Andrew Jackson.  Stephen Harper is trying to tell Canadians that we are doing better than most countries coming out of the recession.  Mr. Jackson examines closely a lot of the "true facts" on how we are actually doing

Despite optimistic predictions about the global economic recovery, there are lingering concerns that deeply affect Canada’s ability to rebound.

There is a rather strange disconnect in current discussion of Canada’s economic prospects.
In much of the mainstream media one hears a lot of happy talk, fuelled by the Harper government’s frequent claims that Canada has emerged from a global recession relatively unscathed, and in fundamentally good shape.
At the same time, the Bank of Canada, the Organization for Economic Cooperation and Development (OECD), Bay Street economists, and even the Department of Finance in the most recent Economic and Fiscal Update point to slowing economic growth in late 2010 and 2011 compared to the early stages of the recovery, and to little further reduction in the national unemployment rate this year.
And that latter scenario may well prove to be unduly optimistic.
If we step back a little and examine where we are now compared to before the recession, two big facts stand out. We have clearly experienced a U-shaped recovery. Compared to late 2008, GDP, or total output, is a bit above where it was, and, as Harper and Flaherty endlessly tell us, the total number of employed Canadians is also a bit above the pre-recession level.
So far, so good. Exceptionally low interest rates boosted the housing market. The energy and minerals sectors have recovered due to strong demand from China and other developing countries. And, yes, the fiscal stimulus package introduced by the federal and provincial governments made an important difference.
On the other hand, it is hardly cause for self-congratulation that we basically lost two years to the Great Recession, and that the recovery has left many Canadians sitting on the sidelines.
The “real” unemployment rate – which counts discouraged workers who have stopped looking for jobs and involuntary part-timers – still stands at 10.3 per cent compared to 8.0 per cent before the recession. We are not even close to where we were in terms of the proportion of the working age population with jobs. And the youth unemployment rate is still 13.8 per cent as baby boomers seem set to work longer to rebuild their retirement savings.
And, while the level of GDP is back to where it was, we now have a large and growing trade deficit – the result of a very limited recovery in the hard-hit manufacturing sector – and productivity growth (output per worker) has been virtually non-existent.
Looking forward, the rather dismal consensus view that we will experience modest growth and a very slow continued decline in unemployment strikes me as unduly optimistic.
Consider the forces that will weigh on growth and job creation. Government stimulus programs, which boosted the construction sector in particular and helped support unemployed workers through extended benefits, are now coming to an end. Instead, both the federal and provincial governments seem set to introduce austerity budgets in the coming weeks which will cut public sector, health, and education jobs.
Low interest rates have been raised only modestly from near zero in the very depths of the recession. But their effect on the housing market and consumer spending seems set to come to an end as far too many Canadians wake up to the fact that they are up to their ears in debt.
Household debt is now at record levels compared to incomes, and even higher than in the U.S. House prices are almost as high as in the U.S. before the bubble collapsed. Why will they not fall here?
Sure, the U.S. seems set for a stronger recovery this year than had been thought likely a few weeks back, mainly because they will continue to run an enormous fiscal deficit by extending the George W. Bush tax cuts. But how much will Canadian exporters benefit with our dollar now trading well above parity?
That leaves a possible increase in business investment, especially in the energy sector, as the key driving force of Canadian economic growth.
To my mind, the negatives ahead overwhelm the positive possibilities by a worrying margin. The difference between the two could be reduced if governments hold off from really tough austerity measures, and if the Bank of Canada resisted their inner compulsion to raise interest rates. But I am not holding my breath.
And, to sound even gloomier, there are some pretty big risks out there in the global economy, which we have no control over.
At the top of the list, countries with big trade surpluses (China, Japan, Germany, oil producers) may no longer be willing to finance the huge U.S. government and trade deficits, driving up interest rates, and perhaps forcing the U.S. to impose its own draconian austerity program.
And it is far from clear whether those big surplus countries can continue to grow as the U.S. continues to experience slow growth, and as austerity programs become the menu du jour in Europe.
By way of conclusion, the much-touted Canadian economic recovery is limited and fragile. Happy talk that the Great Recession is behind us ignores some very fundamental problems with the national and global economy, which remain to be resolved.
Another article about Stephen Harper and the recession
Canadian Prime Minister Stephen Harper, left, and Quebec Premier Jean Charest announce infrastructure funding near Chelsea Que. Friday.

Canadian Prime Minister Stephen Harper, left, and Quebec Premier Jean Charest announce infrastructure funding last year near Chelsea Que.

Canada is not yet out of the recession that has gripped the world, Prime Minister Stephen Harper said , adding that now is not the time for opposition parties to be contemplating an election.
Canadian officials are expressing caution over the economy, saying that while there are signs the worst of the recession is over, they are not declaring victory yet.
"Canada is not yet out of this recession. We must continue our efforts, we have to persevere. Now is not the time for political instability,"
The opposition NDP and Liberal Parties says it might defeat the budget on the grounds that Mr. Harper is not doing enough to help those who have lost their jobs, he is not listening to every day Canadians!.

Asked about a possible spring election, Mr. Harper replied: "I can assure you that I do not intend to trigger an election.  I think the population does not want an election."
Mr. Harper’s Conservatives last won a  minority in an election in October of 2008.

No comments:

Post a Comment