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Ottawa’s lack of economic clarity drives a growing sense of frustration among investors

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1 year ago

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Office towers, condos and apartment buildings in Vancouver on Jan. 19.DARRYL DYCK

Canadian investors have every reason to be frustrated. Now, more than usual, it’s difficult to know what to make of the outlook for the Canadian economy or for Canadian stocks.

On growth, on housing and on immigration, our elected officials offer up a torrent of slogans but not much in the way of clear logic or compelling rationales. This makes it difficult for investors to know what to expect over the next few years.

How could Ottawa improve the economic dialogue? One good way to start would be by replacing its obsession with gross domestic product (GDP), a broad measure of how much the economy produces in a year, with a new focus on GDP per capita.

The distinction between the two measures may seem trifling at first, but it is important. At a time like now, when Canada’s population is expanding at its fastest pace in decades, GDP by itself offers a flawed guide to how typical Canadian households are actually faring.

The problem arises because a larger population automatically means more workers, more productive capacity and therefore higher potential GDP. However, it doesn’t necessarily mean Canadians are living any better unless the increase in output is big enough to outweigh the increase in population.

Focusing on GDP at a time like this is a bit like obsessing over how large a pizza you will be ordering without pausing to think how many people will be sharing it. To assess whether people are actually getting enough, it’s preferable to look at GDP per capita – how much economic pie each individual is enjoying on average.

Yet politicians rarely talk about GDP per capita. Their silence may reflect Canada’s less-than-stellar record on this front. Since 1980, Canada’s GDP-per-capita growth has lagged far behind several similar countries, according to data from the Organization for Economic Co-operation and Development.

While people can debate exactly how best to measure this trend, “it’s clear that GDP per capita growth in Canada has been sluggish,” says Mikal Skuterud, a professor of economics at the University of Waterloo, who recently tweeted a chart showing Canada’s woeful performance on this measure.

Sadly, the trend shows no signs of changing.

The Bank of Canada estimates that Canada’s economy will grow 1.4 per cent this year and 1.3 per cent in 2024. That sounds, at first, like slow but steady growth.

Adjusted for population growth, though, it veers into downright ugly territory. With Canada’s population expected to swell at a 1.3-per-cent annual clip, the bank is essentially predicting a no-growth economy in terms of GDP per capita for this year and next.

Yes, that is a disturbing development. Just don’t count on anyone in Ottawa pointing it out to you.

Policy makers are equally murky when it comes to more specific issues such as housing. Scour politicians’ speeches and you’ll find lots of chatter about promoting housing affordability. But in the absence of any hard, numerical commitment toward building more homes and reducing home prices, it’s hard to take any of the rhetoric seriously.

Investors (and voters) are left guessing about what will happen next. Does Ottawa truly want home prices to fall? Or is it more inclined to support existing home prices to ensure Canada’s current homeowners don’t lose any of that lovely housing wealth they’ve accumulated in recent years?

Politicians have always danced around this question, but the stresses are reaching crisis levels. Canada has historically averaged 0.61 housing starts for every additional working-age person, according to National Bank of Canada. (The number is below 1 because there is more than one person in a typical household.) Today, after a bumper quarter for population growth, we are down to just 0.27 – less than half the historical pace and the lowest number on record.

There are two major culprits behind this enormous shortage of housing starts. The first is bottlenecks to development at municipal and provincial levels. The other is the greatly expanded immigration quotas put in place by the federal Liberals. They have raised the target from around 260,000 newcomers in 2015 to nearly 500,000 people a year now.

Some observers think enough is enough on the immigration front. “Ottawa should consider revising its immigration targets to allow supply to catch up with demand,” says Stéfane Marion, chief economist at National Bank.

Others are more hopeful that housing bottlenecks can be eased and that a renewed focus on recruiting the best and brightest can turn immigration into a source of GDP per capita growth. But even optimists say they are confused by what Ottawa’s immigration policy is trying to accomplish. In a recent column, Prof. Skuterud criticized the government’s “less-than-transparent” approach to setting immigration targets.

The government’s lack of clarity on this and other issues is disturbing. Shouldn’t our dismal record on GDP per capita merit a stronger response? How do supersized immigration quotas fit with an overwhelmed housing market? Until Ottawa deigns to share its reasoning on such matters, frustration is only going to grow and not just among investors.

 

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

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2 days ago

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September 10, 2024

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VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

The Canadian Press. All rights reserved.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

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3 days ago

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September 10, 2024

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NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

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3 days ago

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September 10, 2024

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HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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