Canadian economy slow, but positive

Keep calm and carry on; Canada is okay.

That was the overall message given by a panel of chief economists from Canada’s big five banks, who spoke at the Economic Club’s Emergency Economic Outlook session this morning.

While the U.S. and European economies continue to struggle, Canada has managed to remain relatively stable, and both Canadian and emerging markets are showing slow, but positive growth. All panelists estimated Canada’s growth to be approximately 2% for 2012, and while the U.S. continues to battle unemployment and a lingering housing contraction, Canada’s job market is on the upswing and the housing market is in a far better position than our neighbours to the south.

“We have a cooling, not a collapsing in the housing market,” said Craig Wright, chief economist with RBC.

“Though we’ll see ebbs and flows within our housing markets, we aren’t subject to the kind of major decline that the U.S. had,” said Sherry Cooper, chief economist with the Bank of Montreal.

Cooper pointed to foreign investment as a major advantage in sustaining Canada’s housing market. “There seems to be tremendous interest in our markets by foreigners, many of [whom] are not going to be permanent residents of Canada, but want to diversify their investments and see Canadian real estate as a very positive and affordable investment opportunity,” she said.

However, all panelists stressed that while Canada is somewhat insulated from the troubles in the U.S. and Europe, it is not immune.

“Canada is not an island, but it should outperform [the U.S.],” said Derek Burleton, deputy chief economist with TD Financial. “A year ago, we were looking at Canadian growth to underperform the U.S….but now it’s flipped around.”

However, he adds, historically low interest rates may spur more consumer spending, negatively affecting households already indebted in a low wage environment. “The attractiveness of borrowing is going to mean even higher indebtedness over the next year or two. There’s a long-term vulnerability. So while things are pretty good here, there’s still some cause for concern.”

Overall, panelists said that the global economic recovery will be long and, perhaps painful, with unpredictable ups and downs. The key, they said, is for policymakers to develop more coordinated, cooperative and proactive policies as opposed to the reactive ones the economy has been seeing.

“We had a decade of excess and it’s being followed now by a decade of stress,” said Wright. “Coordinated policy action is the right way out.… Politicians and policymakers eventually get around to making the right decisions; we’ve just been disappointed with how many wrong decisions they have to make before they get there.

“There’s no silver bullet here. We just hope that policymakers stop shooting themselves in the foot.”