Canada’s econ­omy is a quiet vic­tory for Trudeau

Led by a soar­ing housing sec­tor and con­sumer spend­ing, Canada’s gross do­mes­tic prod­uct is fore­cast to lead the G7 this year and jobs num­bers are surg­ing. Yet the coun­try’s prime min­is­ter is oddly ret­i­cent to take credit,

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Canada’s econ­omy is boom­ing, though you’d hardly know it from lis­ten­ing to Justin Trudeau, the prime min­is­ter.

Led by a soar­ing housing sec­tor and con­sumer spend­ing, Canada’s gross do­mes­tic prod­uct is fore­cast to lead the Group of Seven this year. Jobs num­bers are surg­ing, the cen­tral bank is hint­ing at rate hikes and a new round of GDP fig­ures tomorrow will likely show the ex­pan­sion con­tin­ues.

It’s the type of lift-off Mr Trudeau’s gov­ern­ment fore­told when it broke from a gen­er­a­tion of the coun­try’s bal­anced-bud­get or­tho­doxy and pushed fur­ther into deficits. Since Fe­bru­ary, “no ma­jor coun­try or eco­nomic re­gion has en­joyed as pos­i­tive a string of eco­nomic sur­prises as Canada”, Warren Lovely of Na­tional Bank Fi­nan­cial wrote on June 13. And yet it’s some­thing Mr Trudeau has rarely men­tioned be­fore this week, when he cel­e­brated Canada’s ad­di­tion of more than 300,000 jobs over the past 12 months. Even then, he stopped short of claim­ing credit, say­ing num­bers could slip month-to-month and that his growth plan is still in its early stages.

“We don’t see the value in tout­ing and wav­ing around any given month’s pos­i­tive num­bers when we know the next month might be a slight dip and the month af­ter that might be a slight rise,” the prime min­is­ter said on Tues­day in Ot­tawa. “Our fo­cus as a gov­ern­ment is very much on the long term.”

Josh Win­grove writes

He also al­luded to un­cer­tainty fac­ing Canada, say­ing the world is in a “time of tran­si­tion”. No gov­ern­ment wants to tie it­self to an econ­omy fac­ing head­winds that could cool things off, and in Canada the risks are clear – oil prices are slump­ing, fears of a housing cor­rec­tion abound, ris­ing rates could hit con­sumer spend­ing and the ad­min­is­tra­tion of the US pres­i­dent, Don­ald Trump, is rat­tling its sabre on trade.

“It looks like the party that’s been go­ing on for a while isn’t go­ing to stop any time soon,” Ran­dall Bartlett, the chief econ­o­mist for the Univer­sity of Ot­tawa’s In­sti­tute of Fis­cal Stud­ies and Democ­racy, wrote in a re­port this month. “But the party can’t last for­ever.”

Statis­tics Canada re­ports April GDP data on Fri­day, and econ­o­mists pre­dict it gained 0.2 per cent on the month and 3.4 per cent from a year ear­lier. The lat­ter would be the fastest pace since June of 2014.

Part of Trudeau’s ret­i­cence may stem from po­lit­i­cal pledges. He was the only ma­jor party leader in the 2015 elec­tion to pledge deficits, be­cause he said gov­ern­ment needed to stoke growth.

The Trudeau gov­ern­ment’s de­but bud­get pro­jected that pro­gramme spend­ing would add 0.5 per­cent­age points to growth in the fis­cal year that ended March 31, and 1 per­cent­age point in the cur­rent year. The coun­try isn’t on pace for that, in­stead track­ing to add about 0.4 per cent in 2017, Toronto-Do­min­ion Bank econ­o­mist Brian DePratto said, adding “it’s hard to see a whole lot of im­pact” from gov­ern­ment mea­sures so far. Mr Trudeau him­self said on Tues­day that’s by de­sign – and his gov­ern­ment has al­ways avoided cast­ing its plan as stim­u­lus. In­fra­struc­ture spend­ing, for ex­am­ple, will “take a while to get rolling, take a while to have that pos­i­tive im­pact”, the prime min­is­ter said. The pickup in Cana­dian growth – par­tic­u­larly with gov­ern­ment spend­ing play­ing a less-than-fore­cast role – could cast doubt on Mr Trudeau’s rea­son­ing for deficits. And yet there are per­sis­tent risks with Canada’s econ­omy en­ter­ing what Mr DePratto called a tran­si­tion pe­riod.

“Hav­ing that gov­ern­ment sup­port in there keeps that growth rate strong,” he said. “If you lose one of those driv­ers, hav­ing gov­ern­ment sit as a bit of a back­stop to growth – there’s some­thing to be said for that.” One key mea­sure taken by Mr Trudeau was an over­haul and ex­pan­sion of child ben­e­fit pay­ments – in ef­fect, fun­nelling more money to low-in­come par­ents. It has pro­vided a one­time boost since last sum­mer and won’t con­tinue to add new growth each year. On Tues­day, Mr Trudeau al­luded to it as a fac­tor that will pay long-term div­i­dends.

Re­cov­ery from ma­jor fires last year in the heart of Canada’s oil patch, Fort McMur­ray, is also giv­ing a short-term boost to GDP. Canada is on track for real GDP growth of 2.5 per cent in 2017, the best in the G7, with the US com­ing in sec­ond at 2.2 per cent.

In­ter­est rates are set to in­crease and there are signs that the housing mar­ket is fi­nally cool­ing, sig­nalling that res­i­den­tial in­vest­ment will “pull back as a driver of growth go­ing for­ward”, Mr Bartlett wrote. Gains in trade and busi­ness in­vest­ment won’t be enough to off­set the change and growth will slow af­ter this year as “the Cana­dian econ­omy comes back down to earth”, he wrote. Fed­eral mea­sures may not stave off a slow­down – for in­stance, there’s no ev­i­dence that ma­jor in­fra­struc­ture spend­ing has be­gun and the fed­eral plan is spread over so many years “that it won’t pro­duce much short-term bang for the buck”, he wrote.

Con­tin­ued strength in the Cana­dian econ­omy could be a po­lit­i­cal vic­tory for Mr Trudeau, who faces reg­u­lar at­tacks from ri­val politi­cians for deficits of nearly C$30 bil­lion (Dh80.08bn), or three times the scale of what he cam­paigned on. Asked Tues­day when he would re­turn to a bal­anced bud­get, Mr Trudeau de­clined to give a date. He re­peated his gov­ern­ment’s de­sire to “fo­cus on the in­vest­ments needed to grow the econ­omy” in­stead of “bal­anc­ing the books ar­bi­trar­ily and at all costs”.

The im­prov­ing econ­omy will cut the Cana­dian deficit by a cu­mu­la­tive C$12.9bn from this year’s bud­get through to the 2019-20 fis­cal year, which will be Mr Trudeau’s pre-elec­tion bud­get, Mr Lovely fore­cast in his re­port ear­lier this month. Risk fac­tors such as housing and US pol­icy un­cer­tainty still threaten to cool things down.

“For now, how­ever, Canada’s sur­pris­ingly ro­bust ex­pan­sion gives the fed­eral gov­ern­ment greater lat­i­tude,” in­clud­ing to come in with a smaller deficit, Mr Lovely wrote. “And that’s not a bad place to be.”

Chris Wat­tie / Reuters

Justin Trudeau broke from a gen­er­a­tion of Cana­dian bal­anced-bud­get or­tho­doxy and pushed fur­ther into deficits.

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