New Growth Model Needed?
Canadian Gross Domestic Product (GDP) fell by 0.1% in August. The decline mainly reflected temporary closures of major oil rigs, mines and mills due to maintenance or labour disputes. This explanation is valid, as far as it goes.
However, the broader issue is that more widespread economic growth should be more than offsetting these isolated events. Todayâ€™s release reveals a continuing absence of such generalized growth. For four consecutive months, all-industry GDP has stagnated between $1,183 billion and $1,185 billion (chained 2002 dollars).
Public-sector expansion mostly offset private-sector weakness. But Statistics Canada attributes the pick-up in government activity to the end of Torontoâ€™s municipal strike rather than to proactive stimulus measures.
Government intervention, more in credit markets than in the real economy, was crucial in arresting the economic free-fall caused by the financial crisis. However, Canadaâ€™s relatively small stimulus package has not yet been enough to propel positive growth.
Households and private businesses will be de-leveraging for much longer. We should look to the public sector not only as a source of short-term stimulus, but also as the potential driver of economic growth for some time. Fortunately, the much greater public investment needed to achieve growth could also meet important social and environmental goals that should be public priorities in any case.