OTTAWA — In most of the world it’s still known as The Great Recession, but in Canada it may go down as The Great Escape.
While the rest of the world reeled from an economic and financial tsunami that threatened to spiral into the worst disaster since the 1930s, good policies and good planning appear to have sheltered Canada from the worst the downturn had to offer.
Statistics Canada’s official report on the 2008-2009 slump shows it was a most ordinary recession in Canada, in fact, even milder than the two previous economic dips.
Exports fell, more than 400,000 jobs were lost and company profits plunged, but it could have been so much worse, the agency concludes.
“I think you can make a good case it was the Great Recession in Japan and probably the U.S. ... it just doesn’t apply here,” said Philip Cross, the federal agency’s chief economic analyst.
For some economists, the findings have rekindled the debate about whether the federal government was wise pumping $46 billion into rescuing the country from what turned out to be a normal slump.
Economists at the right-wing Fraser Institute say their analysis concludes government spending had minimal impact when the country was falling into recession and jobs were disappearing because infrastructure dollars were slow getting off the ground.
Now that they are flowing, they may actually be hurting the economy by crowding out private sector investment.
The analysis has been dismissed by Prime Minister Stephen Harper and his finance minister, Jim Flaherty, but some economists say it shouldn’t be so quickly rejected.
“The reason to be skeptical (that stimulus worked) is that a lot of it hasn’t happened yet and the recession ended last year,” noted Finn Poschmann of the C.D. Howe Institute.
But CIBC chief economist Avery Shenfeld said it was impossible to “replay the clock” to see what would have happened without stimulus, “particularly since even before a dime is spent, the prospect that it’s coming helps shore up confidence and create activity in the economy.”
In retrospect, however, Cross says the country was well positioned to withstand the economic gale-force winds that originated outside its borders.
Spendthrift households aside, the national savings rate based on government surpluses and corporate balance books had trended up to 14 per cent prior to the shock that came in the fall of 2008. In the U.S., it was below one per cent.
As well, Canada’s financial institutions — mostly the chartered banks — were rock solid while those in the U.S. and much of Europe crumbled. Hence individuals and businesses that wanted to borrow in Canada mostly still could even though there was a credit freeze elsewhere.
Cross notes that in the United States half the drop in consumer spending was because individuals could not get loans to spend on such things as autos and homes.
In Canada, that never occurred and home sales started picking up in February, when the economy was still sliding. This not only bolstered the domestic economy, but also helped arrest job losses far before what occurred in the U.S.
“I think a real lesson from all of this is the importance of a viable, functioning financial system to a modern economy ... that is of crucial importance during both the crisis and recovery,” Cross said.
A comparison of the two countries tells the tale.
Canada’s economy shrank 3.3 per cent from peak to trough during the recession, compared with 3.7 per cent in the U.S.
But the really dramatic difference was in jobs. Canadian employment slid a mere 1.8 per cent, whereas in the U.S. it fell a full six per cent, amounting to 8.5 million jobs.
As well, the just ended recession in Canada was milder than the previous two slumps. In 1981-82, GDP in Canada fell 4.9 per cent and employment by five per cent. The 1991-92 slump caused a 3.4 per cent GDP fall-off and a 3.2 per cent decline in employment.
Although the report does not touch the subject, Canada also appears to be bouncing back stronger than other countries in the G7 — which includes the U.S., Britain, France, Germany, Italy and Japan.
Output rebounded by five per cent in the fourth quarter of 2009 and is forecast to have experienced an even bigger bounce at the beginning of this year. Meanwhile, the economy has added about 180,000 jobs since July.
Canada’s slump was really an export recession caused by the collapse of economies outside its borders, Statistics Canada said, noting that export earnings fell a massive 22 per cent in 2009, and corporate profits 33 per cent.
The result was that corporations stopped spending on capital acquisitions to the tune of $41 billion, cut spending on inventories by $8 billion and on wages and salaries by $9.5 billion.
“So there were two big strikes against the economy; one was exports but the other was business spending on investment and inventories,” said Cross.