Topping the G7 in growth is nothing to boast about

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Appeared in the Toronto Sun, March 7, 2018
Topping the G7 in growth is nothing to boast about

If you get all your information from Wynne government news releases, you might think Ontario was in the midst of an economic boom. These releases consistently trumpet progress on public finances, job-creation and economic growth.

The reality is less rosy, as big economic problems persist. Ontario’s dangerously large public debt continues to grow, and we continue to rely on federal equalization payments. Stubbornly weak business investment raises concerns about future growth.

Given these challenges, how does the government support implicit claims that Ontario is in the midst of a boom? Largely by using misleading factoids to make Ontario’s growth trajectory seem impressive.

Take one of the government’s favourite talking points—that “the province’s economy has outperformed all G7 countries in real GDP growth over the past three years.” This sounds impressive, but a close look shows it’s nothing to write home about.

The G7 is a group of developed countries, namely Canada, the United States, France, Germany, Italy, the United Kingdom and Japan. All these countries are rich, but topping them on economic growth isn’t much of an achievement because nobody in the G7 (outside of Canada and the U.S.) grows much from year-to-year. It is, in short, a slow-growth club.

If you remove Canada and the U.S., the average annual economic growth rate for the remaining five countries over the past 20 years is just 1.28 per cent—compared to 2.4 per cent in Canada and the U.S.

Subsequently, Canada or the U.S. will, in most years, will top the slow-growth group of G7 countries. In this light, Ontario (which represents 40 per cent of the Canadian economy) beating the growth rate of the G7 countries looks a lot less impressive.

But why are Canada and the U.S. outgrowing the rest of the G7? A primary reason is that Canada (and Ontario) along with the U.S. still have reasonably fast-growing populations while other G7 countries don’t. Japan and Germany, for instance, have shrinking populations. So again, it’s nothing to boast about, that in most years overall output (what GDP measures) grows more in Canada than in Japan, given there are more Canadians and fewer Japanese to produce stuff.

To further illustrate the point, let’s zero in on the past three years, which the Ontario government endlessly boasts about. For the five non-North American G7 countries taken as a group, real economic growth averaged 1.5 per cent annually. During this period, the U.S. predictably beat the non-North American members, averaging growth of 2.2 per cent. While Ontario averaged 2.8 per cent.

This is a respectable growth rate, but hardly a boom. Rather, it’s a long overdue patch of growth where the province is regaining a little of its lost economic ground. It’s also not a growth rate that’s expected to last; forecasts project a drop to 1.8 per cent by 2019.

Clearly, Ontario still faces big economic problems, and there are storm clouds on the horizon. Now is not the time for boasting with flattering comparisons to perennial slow-growth countries. Rather, the Wynne government should use this reprieve from stagnation to craft a new approach that will attract business investment to the province, reduce debt, and put Ontario on track to enjoy long sustained economic growth based on sound pro-growth public policy.