Evidence is mounting that Canada is following the world into recession as policy-makers look to new measures to combat an economy-destroying financial crisis.
Economics
CanaData economist sees ICI construction ‘reined in’
OTTAWA
Evidence is mounting that Canada is following the world into recession — and may yet get there — as policy-makers look to new measures to combat an economy-destroying financial crisis.
In a revised update, the International Monetary Fund has sharply downgraded the economic outlook for Canada and the rest of the world from its previous projection a month ago.
The world organization headquartered in Washington said Canada’s economy will avoid recession by the slightest of margins with 0.3 per cent growth next year, while all other G7 leading industrial counties see their economies actually contract, led by Germany and the U.S.
Even so, the IMF’s latest forecast for Canada is well down from the relatively robust 1.2 per cent advance it had predicted only last month.
“Prospects for global growth have deteriorated over the past month,” the body said, urging governments to act to stimulate their economies.
“We think that global fiscal expansion is very much needed at this point,” said IMF chief economist Olivier Blanchard.
“If it comes, then the forecast we have will be on the pessimistic side.”
“Canada is entering this period of worldwide economic slowdown better prepared than many other nations,” said CanaData’s Chief Economist, Alex Carrick.
“Employment has remained strong, there has been no overbuilding of office buildings as in the past and government finances are in relatively good shape.”
“Nevertheless, it would be somewhat naive to think that we will escape unscathed,” Carrick said.
“Goods export sales to the U.S. account for one-quarter of this nation’s Gross Domestic Product (GDP). If the U.S. economy is in trouble, so are we.
“The bursting of the commodity price bubble has dampened the outlook for the resource industries of Western Canada and the industrialized east is suffering from reduced automotive (and other consumer product) demand south of the border,” he said.
“As for construction activity, housing starts in Canada are set to decline as prices ease and more conservative consumers cut back on their spending plans. Reduced access to financing will see commercial construction reined in.”
“Institutional work will depend on whether or not the provinces and Ottawa believe that it is important to keep on spending in order to provide relief for the private sector.”
“Engineering work will be held up in some areas as there is a re-assessment of capital spending projects due to energy price drops in the field of oil and gas work.
“However, with respect to electric power projects, the outlook can only continue to be positive, since many of the initiatives that are being counted on to reduce carbon emissions will involve the use of electricity provided by hydroelectric, nuclear or new alternative (wind, solar, geothermal) means,” Carrick said.
On the political front, Prime Minister Stephen Harper said Canada is weathering the financial and economic storm better than many others, but said his government is preparing new initiatives to boost activity.
To date, Ottawa has moved to backstop bank lending and slashed interest rates in recent weeks, but Harper said more intervention may be needed.
“There has been some improvement in credit conditions but there are still some significant concerns and we are not by any means finished in terms of further steps that will have to be taken,” Harper said, offering no specifics.
Last week brought more indications that the economy in Canada is slowing sharply.
An official government report showed bankruptcies in Canada were climbing steeply even before the worst of the financial crisis hit, increasing by almost 19 per cent in September from the previous month and 28 per cent from a year ago.
And in an indication that Canada’s housing slump is deepening, permits for new housing fell 4.9 per cent during September, the second straight monthly decrease and sixth during the year. Overall, building permits rose 13.4 per cent in September largely on the strength of public-financed non-residential construction.
“The worst part for the economy is largely still ahead of us,” said Derek Holt, vice- president of economics with Scotia Capital.
“The speed at which things are deteriorating is alarming.”
Private forecasters are still reluctant to credit last month’s outsized 107,000 employment growth record, even if almost all were part-time, and widely expect to see a significant drop-off of full-time employment in the new report.
Canadian Press, with files from Daily Commerical news
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