ECONOMY

Harper's spin on economy a bit rosy, economists say

CAMPBELL CLARK AND BILL CURRY
The Globe and Mail
October 1, 2008

OTTAWA -- Stephen Harper hasn't shied from emphasizing the economic uncertainty we face, it's just that he also likes to reassure that it's not going to be so horrible. Here in Canada, at least.

"Remember, Canada is not the United States," the Conservative Leader said in a speech in Val d'Or, Que., on Monday night. "The fundamentals of the Canadian economy are sound."

It's hardly surprising politics, but is it good economics?

From the point of view of political tactics, Mr. Harper's line on the economy has had a clear purpose: to portray the economic outlook as uncertain, but manageable, so that he can better make the case that he is the man to manage it.

That, the Conservatives hope, will emphasize the need for the "leadership" qualities on which he is, according to polls, rated more highly than opponents.

But, at a time when the U.S. Congress is still bickering over a massive financial-sector bailout and the outlook for its economy is teetering between bad and worse, most economists think it's a bit much to reassure that if the United States hits the skids, Canada won't follow.

"I think it's possible we can do a little bit better than the U.S. But we won't defy gravity," said Doug Porter, deputy chief economist with BMO Nesbitt Burns.

"If the U.S. does get into serious trouble, then all of our fundamentals aren't going to save us from a serious downturn of our own."

Mr. Porter admitted the business of economic forecasting is especially cloudy now, because it's unclear what will happen to the U.S. bailout package. With a bailout, the United States is probably in for a mild recession; without a bailout, it will probably be worse.

Most analysts think Mr. Harper is right to point out that our financial sector is not as troubled as that in the United States.

Canadian financial institutions are less leveraged with debt and did not write the whack of risky sub-prime mortgages their U.S. counterparts did, and their exposure to those junky assets has appeared far more limited. Still, Canadian borrowers will continue to face some squeezing, and housing prices will probably slip, many economists predict, but probably not crash.

And Mr. Harper's statement that Canada's economic fundamentals are strong depends, of course, on what you think is fundamental.

Canada's economy is already growing more slowly than the United States.

Dale Orr, managing director of economic forecasting firm Global Insight, said their September forecasts have Canada's real GDP growing at an anemic 0.8 per cent in 2008, compared with 1.7 per cent for the United States. And he said both forecasts will probably be downgraded by about two-tenths of a percentage point in October.

"Relative to the U.S., the Canadian economy looks bad," Mr. Orr said.

That's partly because some of the sharply declining sectors of the U.S. economy, like autos and housing, have hit us harder than them. The manufacturing sector in Ontario and Quebec have been hit hard by an auto-demand decline, and Canadian lumber sales, for example, have been clobbered by the housing slowdown.

About a third of the Canadian economy is directly dependent on business with the United States, so a U.S. downturn will hit Canada, he noted.

Mr. Harper has in recent weeks indicated what he thinks is fundamental: budgets in the black, controlled inflation and growth in income and jobs. On those counts, Canada has done relatively well, Mr. Porter agreed, and jobs have grown, if at a slowing pace.

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the Liberal Party of Canada

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