What happened to the recovery?
(The following isÂ slightly adapted from a short piece on page 3 in the new issue ofÂ Economy at Work, the quarterly publication I produce for CUPE, which also covers a lot ofÂ other relevant issues.)Â Â
Itâ€™s been a little over four years since Canadaâ€™s economy bottomed out in mid 2009.Â While we didnâ€™t suffer as deep a recession as many other countries, growth has been slower than previous recoveries.Â Many are still waiting for the recovery to take hold.
Stimulus spending ensured that the downturn wasnâ€™t as severe as it could have been and growth wasÂ stronger coming right out of the recession, but since then government austerity has slowed economic growth, putting us behind the even the 1990s recovery (see chart below).
While governments cut spending deeper in the mid-1990s, declining interest rates and a much more competitive dollar led to a surge in exports.Â Â Â Thatâ€™s not in the cards this time.Â Instead, interest rates are going up, putting a damper on growth and with the rest of the world in the doldrums, our net export situation has got worse.Â Canada may be open for business, but few are in the position to buy.
Our current recovery isnâ€™t expected to pick up much speed, either.Â Forecasters expect growth to rise to about 2.5% in the next two years, but then to wane to about 2.3% for 2016 and 2017.Â Â The Bank of Canada’s senior deputy governor Tiff Macklem recentlyÂ revealedÂ that the Bank of Canada has downgraded its growth forecast for this year.
Overall growth in this â€œrecoveryâ€ is expected to average just 2.3 per centÂ a year from 2010 to 2017. Thatâ€™s almost a full percentage point lower than the 3.2 per centÂ average for similar recovery period in the 1980s and 1990s (see chart below).
If this recovery matched the growth rate of 1980s and 90s recoveries, Canada’s economic output would be $100 billion and 5 percentage points higher by the end of 2017 than it is currently forecasted to be.Â Â ThisÂ missing $100 billion works out toÂ aboutÂ $6,600 less per household: not aÂ great present for our sesquicentennial.
Is this the new normal: slower growth?Â Â It doesnâ€™t need to be.Â Thereâ€™s lots of excess cash on the sidelines or in speculative investments that would do more good if channeled into productive and social investmentsâ€”or in the hands of households.