If Canada is so much bet­ter off, how come U.S. econ­omy is pulling ahead?

The Guardian (Charlottetown) - - Canada -

OTTAWA — The world is com­ing out of the re­ces­sion but it’s the United States, not Canada, that ap­pears to be one of the coun­tries lead­ing the charge.

Canada’s econ­omy suf­fered a con­fi­dence-sap­ping set­back dur­ing the sum­mer, when gross do­mes­tic prod­uct ac­tu­ally shrank 0.1 per cent in Au­gust, the first out­right de­cline since May.

Fol­low­ing a flat July, Au­gust’s data could re­sult in a neg­a­tive third quar­ter — bar­ring a stronger Septem­ber — mean­ing that in a tech­ni­cal sense, the re­ces­sion has yet to end months af­ter it was de­clared over.

Even worse, the re­treat was wide­spread, led by the crit­i­cal goods pro­duc­tion sec­tors in­clud­ing man­u­fac­tur­ing, oil and gas ex­trac­tion and min­ing.

Com­pare that with the U.S. re­port­ing Thurs­day that its GDP shot for­ward 3.5 per cent in the third quar­ter. Economists say it is now im­pos­si­ble for Canada to come close to match­ing its south­ern neigh­bour when third-quar­ter num­bers are tab­u­lated.

Canada is also al­most cer­tain to fall well short of the Bank of Canada’s pro­jec­tion, made only last week, of two per cent growth for the July-Septem­ber pe­riod, said Sco­tia­bank econ­o­mist Derek Holt.

That would mean the U.S. has bet­tered Canada the last two quar­ters.

That’s a sur­pris­ing de­vel­op­ment. For months, the Harper gov­ern­ment has been boast­ing that not only was Canada’s re­ces­sion shorter and milder than in the United States and other G7 coun­tries but also that the re­cov­ery would be snap­pier and more sus­tain­able.

“Far from lead­ing the G7 out of re­ces­sion, at least four of the seven are ahead of us,” said Lib­eral critic John McCallum.

“ Why? I would put con­sid­er­able blame on the gov­ern­ment be­cause they were slow to act with stim­u­lus and they’ve been ex­tremely slow to get the in­fra­struc­ture spending out.”

Speak­ing in Toronto, Fi­nance Min­is­ter Jim Fla­herty noted that the U.S. surge is largely at­trib­ut­able to short-term stim­u­lus spending, with the clash­for-clunkers pro­gram adding a full point to its GDP.

But he also ex­pressed dis­may that Canada’s econ­omy was not do­ing bet­ter adding: “ We have to be on guard to en­sure the we con­tinue to stim­u­late the econ­omy ... so we don’t slide back­ward.”

Ex­pressed in GDP, the broad­est mea­sure of eco­nomic per­for­mance, the gap be­tween the Canada and the U.S., the epi­cen­tre of the global melt­down, has been hard to dis­cern.

Canada barely beat out the U.S. dur­ing the down­turn, con­tract­ing 3.3 per cent from peak-to-trough com­pared with 3.7 per cent in the U.S.

But since the spring, Amer­ica has left Canada in the dust. The U.S. recorded a mi­nus­cule 0.7 per cent de­cline in the sec­ond quar­ter, com­pared with mi­nus 3.6 per cent in Canada. Now, it has posted a stronger third quar­ter.

“ Yes, we haven’t had the same house price de­clines and fi­nan­cial sec­tor calamity as in the United Sates, but by the bot­tom line mea­sure of GDP, we’ve per­formed at least as bad and the re­cov­ery is slower,” said Holt.

“It’s a pretty wimpy start of a re­cov­ery.”

Fri­day’s re­port sent shiv­ers through the stock mar­ket, with the Toronto in­dex plung­ing more than 300 points at one stage and the loonie tum­bling more than a cent, clos­ing at 92.43 cents US. The TSX fin­ished that day down just over 164 points for its sec­ond con­sec­u­tive weekly loss and its first monthly de­clined since Fe­bru­ary.

Ear­lier this week, the Cana­dian Cen­tre for Pol­icy Al­ter­na­tives ar­gued the United States was pulling ahead be­cause it had done a far bet­ter job of rolling out stim­u­lus spending. It es­ti­mated the Obama ad­min­is­tra­tion had out­spent the Harper gov­ern­ment seven to one.

McCallum said the Lib­er­als es­ti­mate only 12 per cent of this year’s in­fra­struc­ture stim­u­lus has bro­ken ground, and he fears some al­ready bud­geted stim­u­lus might never be spent. He urged Fla­herty to con­sider ex­tend­ing the “use-it-or-lose-it” pe­riod be­yond 2010.

The slow growth may also cause the Bank of Canada to con­tinue keep­ing in­ter­est rates at his­toric lows be­yond the con­di­tional com­mit­ment of July 2010 into 2011, said CIBC econ­o­mist Meny Grau­man.

Given choice of the two economies though, most economists would still pick Canada.

They point to the sound­ness of the fi­nan­cial sec­tor, the smaller gov­ern­ment debt over­hang, the lower un­em­ploy­ment rate and bet­ter fi­nances in Cana­dian house­holds, which should prop up con­sumer spending. With pro­grams like the U.S. cash-for-clunkers and at­trac­tive in­duce­ments to home­buy­ers end­ing, Canada could over­take the U.S. as early as the fourth quar­ter of this year, said Ge­orge Va­sic, a strate­gist with UBS Se­cu­ri­ties.

“ We haven’t had the gim­micks they’ve had that pro­vided near-term boost,” he said. But he said the U.S. will pay for the mas­sive spending in later years through slower growth.

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