The future is bright for our economy

Canada has the resources that the world needs most, coupled with a comparatively low deficit and debt

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The Gazette, Wednesday, December 29, 2010

As the year ends, Canadians can count their blessings: they've come from recession through to recovery in much stronger shape on economic and fiscal fundamentals than the United States or any of our other G7 partners.

The numbers are eloquent, starting with unemployment figures. Canada's unemployment rate is 7.6 per cent, compared with 9.8 per cent in the U.S. Quebec's jobless rate of 7.9 per cent is nearly two points lower than the U.S., and lower than Ontario's 8.2 per cent. Former premier Robert Bourassa, who lived by statistics, would have had no problem making these numbers work for him. Quite simply, the numbers in Quebec's favour are historic, coming out of a recession or at any other time.

Premier Jean Charest has to find a way in 2011 to change the conversation from ethics to the economy, where the Quebec Liberals have home -ice advantage. One thing is certain: he will not be sorry to see the back of 2010, which has seen his approval ratings plunge from the 50s to the 20s, tipping-point territory.

Canada also has had the strongest economic growth in the G7 over the last two years. We have gained back all the jobs lost in the recession and then some. Meanwhile the U.S. economy has lost eight million jobs, with 15 million Americans unemployed and several million more who have given up looking for work. Among other things, these numbers should tell us that Ottawa's $40-billion stimulus package over the last two years has been much more effective than Barack Obama's nearly $800-billion stimulus bill - twice the size of Canada's in per-capita terms -in putting people back to work.

But there can be no comfort for Canadians from this comparative advantage. As a trading nation, we are uniquely reliant on the U.S. market for exports and jobs. Two-way trade in 2009 was $457 billion. Bilateral trade with our second-largest customer, China, was $51 billion. It's one thing to talk about China Rising, but let's keep things in perspective. There's no doubt that we have lots of things the Chinese want, particularly oil and gas. But we should remember that our petroleum exports to the U.S., $70 billion a year, are now twice the level of exports in the auto industry, historically the leading segment of Canadian exports to the U.S.

And then there are fiscal frameworks, deficit and debt, where Canada has a much better story to tell than the U.S. While it's true that Ottawa's deficits since the financial crisis have added about $100 billion to the federal debt, with more to come before the budget is balanced again in 2015, the deficit is only three per cent of GDP and declining, and Ottawa's debt is only one-third of national output. The U.S. deficit of $1.4 trillion in 2010 is 10 per cent of GDP, and Washington's debt is closing in on the legislated ceiling of more than $14 trillion, or 100 per cent of GDP. And Obama, in his tax-cut and stimulus deal with the Republicans, has just taken on another $858 billion in deficit spending, most of it over the next two years. Ottawa's deficit is cyclic, while Washington's is structural.

Other G7 countries have cautionary tales to tell. In Britain, David Cameron's coalition government has declared an end to the nanny state, cutting $500 billion in government entitlements and program spending. University tuition fees have been tripled overnight to $18,000 a year, which is why students were rioting in the streets of London this month. But Cameron inherited a deficit that was more than 10 per cent of GDP, with a debt-to-output ratio of 70 per cent. Japan has a 10-per-cent deficit and debt-to-GDP ratio of 120 per cent, forecast to exceed 150 per cent by 2015. Yikes!

As Kevin Lynch and Karen Miske of BMO Financial Group note in a year-end piece for Policy Options, Canada has a lot of what the world wants: We are the world No. 1 in potash, No. 2 in nickel, No. 5 in diamonds and zinc, and No. 6 in oil.

As they also note, Canada has the lowest cost of doing business in the G7, set to go lower as the corporate tax rate falls to 15 per cent -also lowest in the G7 -in 2012. Canada's banking system has been ranked the best in the world by the World Economic Forum for the last three years. And four of the Big Five Canadian banks are now among the Top 10 in North America in both market capitalization and assets, while U.S. banks have taken a huge hit on both in the financial crisis.

We also have a culturally diverse population that will give us a competitive advantage in dealing with India and China.

Canada, as Lynch and Miske point out, might have challenges in terms of productivity and private-sector R&D. But we have a lot of strengths, and as we look around us, much to be grateful for.

Happy New Year!

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