Economists and media fuel confusion on Canada’s economy and economic policy
As the old joke goes, why did God create economists? To make weatherman look good.
At times like this, nothing could be closer to the truth (full disclosure, we’re economists).
On Monday, Statistics Canada released its August economic growth numbers, which showed the economy contracted. Low and behold, economists and the media reacted immediately: “Canada's shrinking economy signals slowdown could be worse than feared” proclaimed the lead article on the National Post website. “Canada ‘back to reality’ as economy contracts,” declared the Globe and Mail.
Economists were widely quoted in various articles including one high-profile economist who said: “The run of amazing Canadian economic data is officially over, with growth coming back to reality in a hurry.”
Just last month, however, the same media and economists were hyping Canada’s economy.
“Canada's economy steamrolls ahead—4.5% annualized rate of expansion” said the Globe and Mail. “Canada's economy blows away forecasts with 4.5% growth” said the National Post.
“The hits just keep coming for the Canadian economy,” said the same high-profile economist. “Even the naysayers will struggle mightily to find fault in this rock-solid report.”
Consider us the naysayers.
Our commentary in the Financial Post in early September noted “While these headlines may leave Canadians feeling positive and optimistic, they are unfortunately not an accurate depiction of the state of Canada’s economy and worse still, mask serious economic storm clouds on the horizon.”
As we noted, economists and the media were using Statistics Canada’s “annualized growth” number—they took one good quarter of economic growth (1.1 per cent in the second quarter of this year, March to June) and assumed the economy would keep growing at the same rate.
Nary was an analysis made about the underlying conditions in Canada that either facilitate economic growth or detract from it. That is what economists and the media should have been focused on. The hard reality is that private businesses and international investors have lost confidence in Canada as a competitive place to do business. That has been true for some time.
According to data from Statistics Canada, investment by private businesses in plants, machinery and equipment has plummeted from $232.5 billion in 2014 to $197.3 billion in 2016, a decline of 15.2 per cent. Expectations are that investment will continue to decline this year and next. Even business investment in the much-promoted high-tech sector is down almost 13 per cent since peaking in 2012.
Businesses, entrepreneurs and international investors have lost confidence in large part because the federal government and numerous provincial governments (we should single out Ontario and Alberta) have busily implemented policies that discourage investment, entrepreneurship and economic growth.
Significant increases in personal income taxes for skilled educated workers and business owners have occurred in Ontario, Alberta and at the federal level (and British Columbia’s new government is expected to follow a similar path).
Ottawa is also mandating carbon pricing (i.e. taxes and regulations) by all the provinces in the face of other governments either cancelling plans or outright eliminating their existing programs (see Australia). The federal and many provincial governments are also neck-deep in deficits with mounting debt, which implies the possibility of even higher taxes in the future.
Additional regulations for doing business have also been imposed by both the federal and many provincial governments. These new regulations come at a time when Canada is already uncompetitive, ranking 22nd on the World Bank’s most recent index of the cost of doing business.
Simply put, the federal and many provincial governments have made it more expensive to do business in Canada and reduced the rewards (i.e. increased tax rates) for success.
Is there any surprise that the economy is slowing down? Economists and those in the media should have seen the writing on the wall, instead of pumping sensational growth numbers.
Forget the headlines and comments on our recent economic growth, good or bad. All Canadians ought to be deeply concerned about the medium- and long-term economic outlook for our country. This is especially true at a time when emerging policy reforms in the United States could further harm Canada’s competitiveness and economic interests.