Going against the grain, two measures point to stronger economic growth

OTTAWA – After several high-profile downgrades, the Canadian economy is getting some support from two reports that suggest the future may be brighter than most believe.

A leading economic indicator from the Macdonald-Laurier Institute registered its second consecutive monthly gain in September, a signal of moderate growth.

The index rose 0.2 per cent after a 0.1 gain in August and a flat reading in July.

And Export Development Canada chief economist Peter Hall issued a new outlook Tuesday predicting that exports — the Achilles heel of the economy — will register growth of 4.6 per cent this year and 6.3 per cent in 2013. Those are not strong numbers, but likely sufficient to become positives for overall gross domestic product.

“The bottom line is that while opposing economic forces are strong, the world economy’s final growth push is on, led by the U.S.,” said Hall.

“With Canada so close to the core of the action and well-positioned to participate, Canadian exporters should be readying themselves to run right now.”

In the past few days, the Bank of Canada, the Parliamentary Budget Officer and a consensus of economists sampled by the Finance Department all to varying degrees pointed to slower than expected growth in the next couple of years.

Finance Minister Jim Flaherty said Monday that the revisions aren’t likely to throw the government off track in its fiscal projections, but that soft global conditions — from Europe to the United States to China — were all dragging Canada down as well.

But Flaherty also highlighted some positives, particularly from the slowly but steadily improving housing market south the border, which he said should help Canadian exporters, particularly the lumber industry.

That is also what Hall is counting on for his relatively rosy outlook, predicting that the U.S. will grow by 2.8 per cent next year and noting that home construction is currently up 35 per cent.

Coincidentally, Standard & Poor’s/Case Shiller housing index reported Tuesday that U.S. prices rose two per cent in August from a year ago, the third straight monthly improvement.

Bank of Montreal economist Doug Porter sees merit in arguments for higher than expected growth.

“Maybe one of the most positive developments in 2012 is it does look like the U.S. housing market is starting to turn the corner and there’s probably as much a chance the U.S. economy outperforms over the next year as underperforms,” Porter said.

The Macdonald-Laurier index also makes the case for an economy that is expanding, if at snail’s pace. The index, which had been on a downward slide throughout the first half of the year, has now recorded two consecutive months of growth.

“The MLI indicator shows there is still life in the Canadian economy and Canada will finish the year in a growth position,” said Philip Cross, a research co-ordinator with the institute.

The new measure from the think-tank was established last month to fill the gap of economic indicators created after Statistics Canada ceased issuing the index.

The positives for September included a healthy 0.6 per cent increase in the money supply and a narrowing in the interest rate spread between private and public borrowers.

On the negative side, the housing component fell 2.5 per cent due to both fewer starts and existing home sales.