How to prepare for another slowdown

There has been considerable boasting, especially from our own Harper government, on how well, compared to other countries, the Canadian economy has fared during the great global meltdown of 2008-09.

There has been considerable boasting, especially from our own Harper government, on how well, compared to other countries, the Canadian economy has fared during the great global meltdown of 2008-09.

Yet while it is true, for example, that Canada’s jobless rate rose less than in the U.S., GDP performance in the two countries has been the same for the past two years, according to estimates from the global research group at HSBC, one of the world’s top banks.

Now, HSBC forecasts stronger growth in the U.S. than in Canada for this year and 2011. And in what is a disappointing outlook for the next several years, there is a consensus among the leading Canadian bank economists that Canada faces a lengthy period of slow growth and weak job creation for some years to come. The Great Recession may be over but the climb out will be slow. We face sub-par growth heading into the second decade of the 21st century.

For its part, HSBC sees the Canadian unemployment rate rising this year to an average of nine per cent, compared to 8.3 per cent in 2009. Moreover, even in 2011 it is forecasting an unemployment rate of 8.7 per cent.

In other words, “the Canadian economy, although having emerged from the recession in the third quarter of 2009, has by and large disappointed expectations.”

One of our big challenges is to rein in the growing rise of consumer debt, something that Bank of Canada governor Mark Carney has issued strong warnings about.

As HSBC warns,” while American consumers appear to be taking advantage of the shelter provided by low (interest) rates to restore their balance sheets to a healthier position, in Canada low rates are supporting the continued consumer binge on credit.”

Consumer debt in Canada is already high, with the debt/disposable income ratio hitting a record 142 per cent, versus 134 per cent a year ago. “This cheap cost of consumer credit is driving consumer leverage to worryingly high levels,” warns HSBC.

Other factors affecting the Canadian outlook include slow growth in the U.S., especially in autos and housing, which will stifle growth in Canada, and the risks of an even stronger Canadian dollar not driven by productivity gains in Canada but by higher oil and other commodity prices.

Several prominent American economists at the recent annual meeting of the American Economic Association warned that the U.S. over the coming decade is likely to see the slowest economic growth since the decade of the 1930s.

Likewise, Michael Mussa, former director of economic research at the International Monetary Fund, has warned that the high U.S. unemployment rate may take some time to come down. “There are a lot of people who have lost jobs — where those jobs are not going to come back — and they’re going to need to find alternative employment, retool their skills, and so forth,’ he says. People may also have to move to find work, so moving high unemployment levels down “takes time — there’s no doubt about it.”

Two industries in trouble have implications for Canada. One is autos where U.S. sales have declined from about 16.5 million units a year down to about 9 million units at an annual rate during 2009. By the end of 2010, sales could be back up to 12.5 million but it will be some time before sales return to 16 million, Mussa warns.

U.S. housing construction, a big user of Canadian lumber, is also weak. Housing starts had been running at about 2.2 million units a year, but in the spring of 2009 were running at about 500,000 units at an annual rate. Mussa predicts construction could be running at about one million units a year at the end of 2010, well below the annual average of earlier years.

As if this were not bad enough, Stephen King, who heads global research at HSBC, warns that “the idea that we are on the brink of a return to decent growth, a pick-up in inflation to more ‘normal’ rates and a very modest tightening of policy is too good to be true. There are surprises ahead. Not all of them will be pleasant.”

This means two things. First, we should not rush to end economic stimulus and balance the budget by slashing spending. It also means government should be ready, if need be, to provide additional stimulus if growth flags and unemployment gets stuck at a high level.

David Crane is a syndicated Toronto Star columnist. He can be reached at

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

The QEII was closed Sunday morning due to a pole fire. (Photo courtesy City of Red Deer)
UPDATE: QEII near Red Deer reopens

The QEII has been reopened after being closed due to a pole… Continue reading

Innisfail RCMP are investigating a single-vehicle crash that happened west of Bowden on March 21, 2021. (File photo by Advocate staff)
Bashaw RCMP investigate fatal collision in central Alberta

Bashaw RCMP are investigating after a fatal collision Saturday afternoon. Police were… Continue reading

A damaged unicorn statue is shown in a field outside of Delia, Alta. in this undated handout photo. It's not often police can report that a unicorn has been found, but it was the truth Saturday when RCMP said a stolen, stainless-steel statue of the mythical beast had been located in a field not far from where he'd been taken. THE CANADIAN PRESS/HO, RCMP *MANDATORY CREDIT*
Mounties get their unicorn; stolen statue of mythical beast found in Alberta field

DELIA, Alta. — It’s not often police can report that a unicorn… Continue reading

Red Deer Rebels forward Ethan Rowland battles with Medicine Hat Tigers forward Brett Kemp during WHL action at the Centrium Saturday night. (Photo by ROB WALLATOR/Red Deer Rebels)
Tigers claw back, hand Rebels 11th straight loss

Tigers 5 Rebels 2 The same old issues continue to plague the… Continue reading

There were six additional deaths across Alberta reported over the past 24 hours, bringing the death toll to 1,926 since the beginning of the pandemic. (File photo)
Red Deer Public Schools will not pilot the new draft curriculum at its elementary schools. (File photo contributed by Red Deer Public Schools)
UPDATED: Red Deer Public Schools says no to piloting new curriculum

Alberta Teachers’ Association support school boards

People are shown at a COVID-19 vaccination site in Montreal, Sunday, April 18, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
Federal government to send health-care workers to Ontario, Trudeau says

MONTREAL — Prime Minister Justin Trudeau says federal departments and some Canadian… Continue reading

People cross a busy street in the shopping district of Flushing on Tuesday, March 30, 2021, in the Queens borough of New York. Access to the COVID-19 vaccine in the United States is growing by the day. THE CANADIAN PRESS/AP-Kathy Willens
Despite COVID-19 vaccines, Americans in D.C. not feeling celebratory — or charitable

WASHINGTON — This might make Canadians jealous of their American cousins for… Continue reading

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, speaks during a press briefing at the White House, Tuesday, April 13, 2021, in Washington. (AP Photo/Patrick Semansky)
Half of U.S. adults have received at least one COVID-19 shot

WASHINGTON — Half of all adults in the U.S. have received at… Continue reading

A man pays his respects at a roadside memorial in Portapique, N.S. on Thursday, April 23, 2021. RCMP say at least 22 people are dead after a man who at one point wore a police uniform and drove a mock-up cruiser, went on a murder rampage in Portapique and several other Nova Scotia communities. THE CANADIAN PRESS/Andrew Vaughan
Memorial service in Nova Scotia marks one year since mass shooting started

TRURO, N.S. — A memorial service is planned for today in central… Continue reading

In this April 23, 2016, photo, David Goethel sorts cod and haddock while fishing off the coast of New Hampshire. To Goethel, cod represents his identity, his ticket to middle class life, and his link to one the country's most historic industries, a fisherman who has caught New England's most recognized fish for more than 30 years. (AP Photo/Robert F. Bukaty)
‘It’s more than just a fish:’ Scientists worry cod will never come back in N.L.

ST. JOHN’S, N.L. — The latest assessment of Atlantic cod stocks, whose… Continue reading

FILE - In this Friday Aug. 21, 2020 file photo, Leonid Volkov, a top strategist for Russian opposition leader Alexei Navalny, addresses the media in Berlin, Germany. Activists for imprisoned Russian opposition leader Alexei Navalny are calling for massive protests in the heart of Moscow and St. Petersburg as Navalny's health reportedly is deteriorating severely while on hunger strike. Leonid Volkov, a top strategist for Navalny, said the demonstrations are called on short notice for Wednesday April 21, 2021, because "his life hangs in the balance. ... We don't know how long he can hold on." (AP Photo/Michael Sohn, File)
Navalny’s team calls protests amid reports of failing health

MOSCOW — Associates of imprisoned Russian opposition leader Alexei Navalny called Sunday… Continue reading

Florida Gov. Ron DeSantis gestures during a news conference Sunday, April 4, 2021, at the Manatee County Emergency Management office in Palmetto, Fla. DeSantis has received a single-dose coronavirus vaccine. His office confirmed Wednesday, April 7, 2021 that the Republican governor got the Johnson & Johnson vaccine, which requires only a single dose. (AP Photo/Chris O'Meara, file)
GOP White House hopefuls move forward as Trump considers run

WASHINGTON — Less than three months after former President Donald Trump left… Continue reading

Each spring, the Okanagan Fest-of-Ale is held in Penticton. This year, as a result of the COVID-19 pandemic, the festival will not be held. However, beer is still available. How much do you know about this beverage? (
QUIZ: How much do you really know about beer?

Put your knowledge to the test with this short quiz

Most Read