OTTAWA – Almost four years removed from the start of the so-called economic recovery, 2013 could be the year Canada finally leaves the legacy of the Great Recession behind.
It may not look like it from the numbers.
With few exceptions, most economists see the upcoming year as not much better than what happened in 2012, when the pillars of global expansion came tumbling down like so many dominoes.
Says Arlene Kish of IRS Global Insight: “It is more like the Canadian economy will be able to keep its head up by treading water while waiting out external global winds.”
And CIBC chief executive Avery Shenfeld, who was recently voted the most accurate forecaster of the past two years, says the time for Canada to set sail from a few years of dead calm is 2014’s story.
Canadians should hope Shenfeld doesn’t win the accuracy award next year because he is predicting the country’s gross domestic product output will only expand by 1.7 per cent, marking the third consecutive year of losing altitude in the growth statistics since 2010.
That’s the year the economy shot out of Great Recession with a 3.2 per cent spurt. Since then, the numbers have trended downward — 2.6 in 2011, about 2.0 in 2012, and according to the latest consensus, 1.8 in 2013.
So where’s the good news in all this?
It’s that even the pessimists among the private sector forecasters say the second half of 2013 will start resembling the economy Canadians have been expecting for several years.
For the optimists, solid growth and job creation arrive even earlier.
“I think it’s certainly possible,” says Doug Porter, who was recently named the Bank of Montreal’s new chief economist — if Canada and the world manage to skirt the potholes.
The first crater is just around the corner. The U.S. Congress and White House have to work out a fiscal deal that prevents government action from sabotaging the economy. Pothole number two is Europe, which will remain a major risk for years.
“Ultimately to really get rolling we need a much healthier U.S. economy and I do think things are starting to fall in place for the U.S.,” Porter says.
“Their housing sector is turning the corner, auto sales are getting back to almost normal … and if that happens, then that would be a huge positive for the Canadian economy.”
The Royal Bank, among the glass half-full crowd, sees policy-makers steering clear of cliffs, fiscal and otherwise, with the result being a stronger global performance. And it sees the resultant boost drawing early dividends.
The RBC has Canada’s economy picking up steam in each of the first three quarters of 2013, starting with a 2.4 per cent gain in the first quarter and peaking at 3.4 in the third, the summer months. Overall, 2013 will average 2.4, mostly because of the weak handoff, and 2014 expands to 2.8 per cent.
RBC chief economist Craig Wright doesn’t see this as particularly strong growth, given that typically recoveries can generate rates as high as five and six per cent. But in comparison to the last few years, it constitutes solid progress.
The reason it won’t be more robust, says Wright, is that while exports provide a boost as the global economy strengthens, the domestic side goes into hibernation for awhile.
Canadian households have spent their limit the past few years, he explains, so their contribution is likely to cool going forward, led by a much more tame housing sector.
TD Bank chief economist Craig Alexander also sees the U.S. fiscal cliff negotiations as key. If there is a deal between the Democrats and Republicans, about four percentage points of stimulus — in terms of spending and tax cuts — will stay on the books another year.
But the importance of a political deal goes beyond the direct aid to business and workers, he says.
Some have argued only fear and lack of confidence has kept trillions of dollars in U.S. corporate treasuries — what Bank of Canada governor Mark Carney called “dead money” — from being unleashed, triggering a new growth cycle.
“If you had a bipartisan deal you could have remarkably strong economic growth in the United States because you would unlock business confidence, which could allow very strong balance sheets to be put to work, creating jobs and economic growth,” he explained.
On the other hand, if it went the other way, even the most pessimistic of forecasters would be embarrassed by how rosy his outlook had been.
Economists say an example of what could be in store is to consider the stock market crash that occurred in the summer of 2011 when Republicans threatened to hold up extending the U.S. debt limit. Next year’s “fiscal cliff” repercussions would be scarier and longer lasting, they say.
It’s one reason Finance Minister Jim Flaherty says he’s “relatively optimistic” it won’t happen. “I think there’s a keen realization of the seriousness of the issue.”
Early on, as Canada was emerging from the slump, economists warned this recovery would be different, leading the CIBC’s Shenfeld to label it “the Great Disappointment.”
Their reasoning was that the 2008-09 crisis wasn’t caused by fatigue or central banks hiking interest rates to control inflation. So cutting rates wouldn’t work, or wouldn’t work dramatically.
At the centre of the crisis was years of excessive spending, particularly on borrowed money, which only years of saving could reverse.
That wasn’t so much the case in Canada, but as a trading nation, Canada paid the price when its foreign customers stopped buying what it was selling. They’re still not buying. Exports have actually contracted in the past year and overall, are still below where they were in 2007.
But economists say winds are changing on that front, particularly south of the border, where households have reduced debt and built up their net worth to near pre-slump levels. As well, China, which went through a particularly soft patch this year, is expected to put in a more solid performance in 2013.
Barring another major setback, those two sources of external strength will help lift Canada’s economy. The question is will it be this year?