Based on increasing fears of a global recession and the International Monetary Fund's recent worries over this country's slowing growth prospects, one could be forgiven for thinking that Canada is on the precipice of something really bad.
I think those anxieties are exaggerated. Canada is not immune to global economic weakness. But we're not headed down the same path as many other countries.
Sure, household debt levels in Canada are higher than many people – including the IMF – would like. But recent tightening measures by Canada Mortgage and Housing Corp. are taking much of the fervour out of the red-hot housing market, and that should help restrain the runaway growth in mortgage debt.
Of course we are now hearing about how Finance Minister Jim Flaherty is going to be forced to alter his fiscal plan. Then again, who isn't? And how many other countries out there are still posting deficits as small as 3 per cent of GDP, with debt ratios and corporate tax rates in descent?
When you look around the world, Canada is a bastion of stability. What makes the current economic cycle in Canada so unique and exciting is that it is being fuelled by the supply side and driven by impressive rates of growth in capital spending, which in turn will boost future productivity.
In real terms, capital expenditures by business have risen for six quarters in a row and have expanded 20 per cent on a year-over-year basis – 10 times the pace of the rest of the economy.
This is the silver lining in the Canadian dollar's strengthening trend in recent years. While the firm loonie has hampered the competitiveness of Canadian exports, it has also helped businesses purchase technology from south of the border at lower cost. Even with the loonie's recent dip back below parity, the Canadian buck still goes a lot further than it did when it was worth around 62 cents (U.S.) back in the dark days of January, 2002.
Purchases of machinery and equipment from foreign producers (mostly from high-tech firms in the United States) are coming across the border to the tune of $100-billion annually, or about 30 per cent of the total inbound traffic of goods. The prices that Canadian business are paying for this technology are 7 per cent lower than at this time last year.
The new equipment being purchased will help increase Canadian productivity. Canadian multi-factor productivity – capital and labour co-mingled – turned positive last year for the first time in a decade and posted its best performance in nearly two decades.
If 2-per-cent multi-factor productivity growth can become the new normal, and 1-per-cent population growth can be sustained, then perhaps the future for Canada is a non-inflationary growth rate of a 3 per cent, as opposed to the lacklustre 2-per-cent trend many economists are predicting. That's reason for hope, not worry.