ECONOMIC REALITIES BECOMING MORE CLEAR
It’s getting more difficult to escape the reality that Canada’s economy is in a recession. Gross Domestic Product numbers for May, released Friday, show the country’s economy shrank by 0.2 per cent.
While some will point out May is but one month — and the numbers are now dated — the fact it’s the fifth consecutive monthly decline suggests we’re in the midst of a recession, technically defined as two consecutive quarters where growth contracts.
What’s worrisome is that those May numbers occurred before the oil price posted its worst one-month decline — as happened in July — since the 2008 downturn. Benchmark West Texas Intermediate dropped 20 per cent in July, trading below $47 US a barrel Friday, while Brent has fallen 17 per cent in the same period.
The take-away from the price declines, for both Alberta and the country, is that if you thought second-quarter numbers for the oilpatch were bad, wait until the third quarter.
According to the consultancy IHS, since the Organization of Petroleum Exporting Countries opted not to cut production last fall, effectively handing the role of swing producer to the United States, oil plays that were economic at $60 a barrel are now only economic at $40 a barrel.
What that means, according to an IHS research note published Friday, is that eliminating the current supply glut — meaning a drop in U.S. oil production — will require oil prices to sit around $40, or below that level, for “several months.” That’s anything but good news. This week’s earnings parade was a gusher of red ink, with companies like Cenovus, Suncor, Penn West, Imperial Oil and Shell reporting markedly lower results along with spending cutbacks and layoffs.
Alberta’s Jobs, Skills, Training and Labour Ministry said Friday that 2015 job losses in the prov- ince have reached 11,400. And that’s only counting situations where more than 50 people were laid off and therefore had to be reported.
Alberta has been the job creation engine for the country since 2001. According to the University of Calgary’s School of Public Policy, without the expansion in the energy sector, Canada’s unemployment rate would have been much higher, consistently breaching the 10 per cent mark since 2008.
While all of this is clearly troubling for Alberta, it should concern the entire country as there is a different dynamic at play compared with previous recessions. Even with a low dollar, there has yet to be a significant increase in manufacturing, which fell by 1.7 per cent in May.
That wasn’t supposed to happen given our exports are now more competitive.
What’s different this time, says economist Sherry Cooper, is that auto manufacturers — significant contributors to the Canadian economy who benefited from the veil of competitiveness provided by a low loonie in past recessions — are not the important econom- ic contributors they once were.
“The auto industry has been restructuring away from Canada,” Cooper said Friday, pointing to the big auto manufacturers’ decisions to locate plants outside Ontario, opting instead for lower cost jurisdictions like Tennessee and Mexico.
“We don’t have the manufacturing base that we used to,” said Cooper, chief economist for Dominion Lending Centres.
Nor, for that matter, do we have a Research In Motion.
The latest GDP numbers south of the border showed an annualized growth rate of 2.3 per cent. While that can be seen as positive, especially for a country like Canada where 75 per cent of our exports go south, it also highlights the importance of joining the Trans-Pacific Partnership, now being negotiated in Hawaii.
“Being part of the global economy means being able to export everywhere, not just to the United States,” said Cooper.
This means dealing with the sacred cow of supply management in the dairy industry (pun intended). To think this could hold up the possibility of Canada joining the 12-country trading consortium is nothing short of ridiculous.
However, if an election is called Sunday, as rumoured, the only explanation for the position taken by Canada at the TPP negotiations is that the Harper government is worried about losing votes on this issue.
Not only is this entirely short-sighted, but the economic consequences of being shut out of a trading construct that will include the United States and Mexico as signatories — and potentially not Canada — should be of great concern to Canadians. Imagine our NAFTA trading partners expanding their markets with developing countries around the world, while Canada watched from the outside.
It’s bad enough the Keystone pipeline remains in limbo, as does Northern Gateway and Kinder Morgan’s Trans Mountain expansion. The government must not extend, and compromise, the potential of the broader economy.
Then again, this is a government that’s clearly playing — or paying — the votes, as evidenced by the blatantly transpar- ent funding announcements it’s sprinkling around the country like pixie dust as a way to anesthetize the electorate. Look no further than the strings-attached promise to fund Calgary’s Green Line LRT, which requires both the province and the city to kick in funding. Exactly where, during these challenging economic times, will those dollars come from?
If an election call does come Sunday, Albertans, and all Canadians, need to reflect on the fact Ottawa has opted, for ideological reasons, to stand on the sidelines as the country’s economy has continued to slide into recession rather than engage in meaningful fiscal stimulus.
That’s not the kind of economic stewardship Canada needs, or deserves, right now.