Canada’s Second Quarter: Worst in the G-7
This morning’s Gross Domestic Product figures put the lie to Prime Minister Harper’s claim that “we will come out of this faster than anyone.” While many other advanced economies grew or stabilized during the second quarter of 2009, the Canadian economy shrank by 0.9%.
During this period, three G7 countries – Japan, Germany and France – experienced economic growth. The remaining three – the US, Italy and UK – declined by less than 0.9%. Total output from Organisation for Economic Co-operation and Development countries neither grew nor declined.
Gross Domestic Product, Second Quarter Over First Quarter
|
 Japan |
 0.9 % Growth |
|
 Germany |
 0.3 % Growth |
|
 France |
 0.3 % Growth |
|
United States |
0.3 % Decline |
|
 Italy  |
0.5 % Decline |
|
 Britain |
0.8 % Decline |
|
 Canada |
0.9 % Decline |
Today’s release also revised the first-quarter numbers downward, revealing that Canada’s economy decreased by 1.6% (as opposed to 1.4%) in that period.
There was a glimmer of hope: the economy grew slightly in June, the first month of growth since July 2008. While one month certainly does not make a trend, it is consistent with forecasts of an initial recovery in the third quarter.
Unfortunately, an initial recovery in output is unlikely to improve the job market. Employers can begin increasing production by having existing employees work more hours and by taking advantage of productivity improvements. Only after those avenues are exhausted will employers start hiring again.
The incorrect notion that Canada would naturally recover faster than other countries had justified complacency about policy responses. The federal government has deflected calls for a second stimulus package and delayed the possibility of Employment Insurance reform.
In fact, Canada is lagging behind in terms of economic recovery. Even after output starts recovering, unemployment will continue rising for some time. Therefore, the need for public policy to create jobs and provide adequate benefits to the unemployed is as urgent as ever.
UPDATE (Sept. 1): Quoted in Globe and Mail Update
since when can you trust Stephen Harper and the Conservatives? Never rather still….
Progressives involved with economics? This is either a humour website or somebody’s dream. The only thing progressives know about money is how to give it to their friends.
Were not on a gold standard anymore, there is no natural cap politicians may spend. There is no real chance of sustained deflation, that would require the bank of Canada to tighten monetary policy and raise interest rates.
A gold Standard puts a natural cap on government spending therefore, it was a tighter restrictive monetary policy, no matter what the Central bank nor Government would like to do. Today we live with No cap, and the promise they will not act like drunken sailors and spend, spend, spend till your money is monopoly money.
For me, That’s exactly what I want anyways and I know its the end game, all countries No matter what cant have 0% or 1% intrest rates for ever so Im invested for when goverments raise the rates. When Canada raise it rates some people will complain, those who got hooked to an artificially low interest rate.
During the post world war 1 recession in 1922, American government downsized, raised interest rates, and the figures for collapsing prices and unemployment were worse then the great depression and it was over in a year, then use to be biggest now second biggest stimulus in history was provided by FDR 7 years later, When America was the largest Creditor and used surpluses.(New stimulus done by debtors like the USA have to borrow,print, tax or a combination of all three) He diverted resources into sectors he thought needed them. He also never solved unemployment it was worse off into his term, till WW2 required millions of people constantly.
The depression lasted to till the end off WW2 when The US cut government spending by 2/3rds and Taxes by 1/3rd. That is the only time in history we have a long lasting depression and the only one we massively as a world tried to stimulate from America to Italy.
Just about every economist is for a Keynesian economic stimulus package of the sort that Pres. Obama has gotten enacted. Most economists would spend the $750 billion differently and many would argue for a more expensive package. It is our belief that Keynes himself would not approve it.
Of the four elements of spending Keynes identified, Consumption, Investment, Government Purchases of Goods and Services, and net Exports [Exports – Imports ], there is no attempt to deal with the fourth element which is the chronic and growing negative value of Exports Minus Imports, which is the primary cause of the recession. Keynes did not think that the way out of an economic downturn was to create a favorable balance of trade, Exports Greater than Imports but he would find Imports Greater than Exports equally wrong. He would see nothing wrong in getting trade into balance Exports to Equal Imports to increase employment. He would not consider a trade deficit a virtue nor balanced trade a vice. Canada’s unemployment in 2008 rate has risen to an 11-year high and the trade deficit to a record 9 year, government figures showed. Eliminating the trade deficit would also eliminate most of our unemployment number.
Keynes once wrote” Trade surplus countries should stimulate their economies; Deficit countries should balance trade” We are behaving quite well from this perspective going from surpluses to deficit, but the US has not yet & many Canadians and Americans cheer on to get back to status quo so Canada can start sending 70% – 80% of its trade with one country. I thought we would learn and begin to diversify our trade with all nations, has putting all our eggs in One Basket been helpful this last decade, from the soft wood lumber dispute till now
American & Canadian economists consider themselves to be following Keynes’ recommendations when they try to stimulate an economy with stimulus packages, but they studiously ignore the fact that Keynes’ had different advice for trade-surplus countries and trade-deficit countries.
Volume 25 of his collected writings is full of his plans for the institution that would regulate the world economy after World War II. His institution was to have very different requirements for trade surplus countries and trade deficit countries (pages 79-81), with the goal of keeping trade in balance. Here is what his institution would require of trade surplus countries:
A Surplus Country shall discuss with the Governing Board (but shall retain the ultimate decision in its own hands) what measures would be appropriate to restore the equilibrium of its international balances, including
* (a) measures for the expansion of domestic credit and domestic demand:
* (b) the appreciation of its local currency … or, if preferred, an increase in money-wages;
* (c) the reduction of excessive tariffs and other discouragements against imports;
* (d) international loans for the development of backward countries.
On the other hand, countries with a trade deficit would be allowed to take the following actions:
* (i) restrictions on the disposal of receipts arising out of current trade and ‘invisible’ income.
* (ii) import restrictions, whether quantitative or in the form of ‘duty-quotas’ (excluding however prohibitions genuinely designed to safeguard e.g. public health or morals or revenue collection);
* (iii) barter arrangements
* (iv) export quotas and discriminatory export taxes;
* (v) export subsidies either furnished direction to the state or indirectly under schemes supported or encouraged by the state; and
* (vi) excessive tariffs.
“Even if our deficit rose to $20 billion, which is quite possible, that would only be a little more than one per cent of GDP, whereas the United States has come off a string of years when their deficit has been five or six per cent of GDP,” he noted. “We’re a long way from the U.S. situation.”
But whether we get there 1 year or 10 years; either way is just bad. Canada doesn’t need another stimulus, it has followed Keynes advice well, Canada shouldn’t enact another stimulus till the largest debtors in the world also get in line by enacting polices that further a balance of trade.