Are Canada's Economic Fortunes Turning? Putting Q3 Numbers in (Some) Economic & Policy Context

By Keith Edmund White, Editor-in-Chief

iPolitics and WSJ offer an illuminating one-two punch on the Canadian economy, both--in different ways--putting Canada's not-so-thrilling economic numbers in context. The big economic question:  Is Canada's energy-heavy and (now fading) housing market boom finally weighing down Canada's phenomenal post-08 financial crisis economic performance?  Well, let's start with the snap numbers, and then review the WSJ take.  And when it comes to the policy impact of this news, particularly Canada's relationship with the United States, CBC's report on a confidential Canadian foreign policy report gives some helpful input.  So, with introductions out of the way, let's warm-up that cooling coffee with a Canadian economic web round-up!

iPolitics reports on Canadian third quarter 2012 blues, and America's economic uptick:

“Canada’s economy in the third quarter succumbed to a litany of lapses,” says CIBC World Markets economist Emanuella Enenajor, citing government austerity and weakness in trade, energy shipments, housing, and business investment. CIBC projects the quarterly economic report card Friday will reveal growth slowed dramatically to an anemic annual pace of just 0.5 per cent from 1.9 per cent in the second quarter.

On the other hand, America is enjoying what has typically been Canadian luck in the years following the 2008 financial crisis:

In contrast to Canada, the US economy is picking up steam, with Scotia Capital economists projecting growth third quarter growth there will be upwardly revised Thursday to a relatively robust 2.7 per cent annual pace from the initial 2.0 per cent estimate.

Oh, and let's not ask about the EU:

“In terms of the global third quarter growth scorecard, it looks like the US has picked up some momentum, Canada is slowing down and the European Union is in outright recession,” says Scotia Capital economist Derek Holt. 

So, should Harper be breathing a deep sigh of relief that Canada's electoral system has bought him three plus years to ride out the storm? Well, maybe.

From WSJ:

Most economists say Canada can ride out the storm. But this trade-dependent nation—far less scarred by the recession than its larger neighbor to the south—is suddenly looking vulnerable, just as a number of indicators suggest brighter days ahead for the U.S.

While the recession laid global peers low, Canada's strong bank balance sheets funded continued consumer spending during the recovery. Years of that easy credit in turn helped give rise to a housing boom that has underpinned an economy already benefiting from another surge—in commodity prices.

Today, global commodity prices are weakening, and home prices in some of Canada's hottest markets are leveling off or falling. Canadian households, meanwhile, are as leveraged as they have ever been after years of extremely low interest rates. Since September 2010, the Canadian central bank's benchmark interest rate has been at 1%.

It's no surprise then that Canadian policy makers are pushing increased trade as a way to prop up Canada's declining economic performance.  The solution: expand Canadian access to emerging markets, particularly Asia.  From last week's CBC News report showing revealing a "confidential government document" that urges Canada is expand trading opportunities, even if this means pursuing economic deals with countries "where political interests or values may not align":

A confidential government document obtained by CBC News warns the Harper government has been slow to open new markets in Asia, leaving Canada firmly tied to the troubled U.S. economy for a long time to come.

The document prepared by Foreign Affairs and dated Sept. 6 is a draft of a highly classified new "Canadian foreign policy plan" the Conservative government has been preparing for more than a year.

The draft briefing paper for the federal cabinet states: "We need to be frank with ourselves — our influence and credibility with some of these new and emerging powers is not as strong as it needs to be and could be.

"Canada's record over past decades has been to arrive late in some key emerging markets. We cannot do so in the future."

The Harper government itself took the slow road to China.

So, good news:  An American recovery could help lift Canada, both in manufacturing and likely increase in energy demand.  Downside, a slopping EU isn't going to help matters on either front, and something should be done about that housing trouble--beyond the superficially appealing solution of privatizing Canada's Housing and Mortgage Corporation.