Saturday January 09, 2016

In-House Panel: "Seismic shifts" in economy problematic for rookie finance minister

(Canadian Press)

Listen 9:16

The outlook for the Canadian economy is anything but rosy — a sizable export deficit, commodity prices are in the doldrums and employment growth has been anaemic.

Not to mention the loonie has sunk to its lowest levels in more than a decade. As a consequence, Bill Morneau, the government's rookie finance minister, is facing trying times.

"You not only have the low dollar, and the low price of oil, all those things, but you have people watching their stocks go down, which makes them nervous about the economy, worried about spending," Rosemary Barton, the host of Power and Politics, said in a panel discussion on CBC Radio's The House.

Barton said Morneau will have to focus on putting skittish consumers, and businesses, at ease in his upcoming federal budget.

The Liberals have promised to run deficits, and ramp up government spending, to jump start the slumping economy. But the governor of the Bank of Canada says Canadians shouldn't expect a dramatic turnaround in the near term even with more money flowing out of the federal treasury. 

Stephen Poloz, the governor of the Bank of Canada, warned this week that the economy is in for a difficult adjustment period after a "seismic shift" in global commodity prices. 

But all is not lost and the country will likely avoid the dreaded "r" word, according to Chris Alexander, the vice-president of economic analysis at the C.D. Howe Institute.

"The Canadian economy is not in recession, but economic growth is going to be quite moderate," Alexander said in an interview with Terry Milewski on CBC Radio's The House.

"Economic conditions across Canada are going to be incredibly different. The experience that Canadians are going to have really depends on where they're living in the country," he said, predicting the economy as a whole will grow by roughly 1.5 per cent this calendar year. 

Alexander says he expects continued weakness in the resource-leveraged provinces like Alberta, Saskatchewan and Newfoundland but relative strength in Central Canada and B.C. where he says there will be solid — but not booming — economic growth.

"The big challenge is where are we going to get the next driver of economic growth? If I look at domestic demand in Canada, the consumer is carrying an awful lot of debt," Alexander said.

"Resources aren't going to be the big driver because we're getting a lot less money for our exports. So that really leaves non-commodity exports and this is why the U.S. outlook is so important."

Government spending could be another source of growth, but Alexander warns that Morneau will have to be more selective with infrastructure spending than the Harper government was during the last recession.

"The real question is going to be whether they increase the size of the commitment on infrastructure spending given the weakness that we're seeing in the economy. I think the government is going to be under enormous pressure to use infrastructure as a stimulus measure.

"The one thing I would caution, though, is while there is a tendency to want to do infrastructure for shovel-ready projects because it will get the money out the door faster, I think it's really important that the government identifies the right projects to be investing in for the long run because ultimately infrastructure investments are about boosting long-term productivity, and competitiveness," Alexander said.

"[Under the Harper government] there was such urgency to get money out the door that I don't think the right projects were always chosen." 

Mark Kennedy, a political reporter with Postmedia News, told Milewski that Canadians are expecting the Liberals to deliver on renewed economic growth, and they could face a backlash at the ballot box if they don't come through.

"The problem for Mr. Morneau and the Prime Minister is this: They've raised expectations that with tax cuts, and with infrastructure spending, they will make lives easier for Canadians. If, over the course of four years, people are [disappointed] they will punish him," Kennedy said.