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Tuesday, September 12th, 2023

Canadians have cause for economic optimism – Ask a Vancouver Mortgage Broker

Adil Virani Vancouver Mortgage BrokerJim Flaherty’s forecast Tuesday of a weaker global economy, a bigger 2012 deficit than previously anticipated and a delay in the balancing of Ottawa books is likely to trigger the kind of headlines that get folks wringing their hands.

Canada’s 1.4 million unemployed workers will fear an even longer wait for a decent job. A middle class that’s been struggling for three decades to make ends meet will doubt that a revival in household-income growth is close at hand.

Yet the cause for optimism should be driven home hard and relentlessly. Optimism does tend to be a self-fulfilling prophesy, and we have plenty to be realistically hopeful about.

The assessment of Canada released last week by the Paris-based Organization for Economic Co-operation and Development (OECD) is quite stunningly positive, though overshadowed by Flaherty’s hints Tuesday that we might not be able balance the budget quite as soon as the 2015-16 deadline set in his March 2012 budget.

The OECD forecasts Canada continuing to outpace its Group of Seven peers in economic growth over the next 50 years. And it has us lagging, slightly, only Japan in the arguably more important measure of per-capita GDP growth during the next half century.

The OECD sees Canadian GDP growth averaging 2.2 per cent annually over the next half century, with only the U.S. and Britain, each at 2.1 per cent, coming close among G7 countries.

Curiously, for all the whinging about laggard Canadian productivity growth that has been part of our economic discourse for decades, the OECD says Canada will not enjoy the spectacular growth rates that Italy, Greece and South Korea could reap if only they would adopt market-liberalizing practices. That’s because Canada is already at or near “best practices” in economic efficiency, the OECD concludes.

I’d argue differently, that there’s tremendous potential for even higher-than-forecast Canadian GDP and household income growth.

Canada remains unforgivably slothful in integrating new Canadians into high-skill, high-paying jobs. Newly-arrived Indians, South Koreans, Iranians and Hong Kongers, eager to launch new businesses and create employment in their adopted homeland, face disappointment over the red tape that impedes their progress.

And our branch-plant economy, the world’s largest, does indeed lag many of our competitors in productivity and new-product development. That’s because offshore absentee owners stint on Canadian R&D and leading-edge technology. As do far too many locally owned enterprises, as Bank of Canada Governor Mark Carney has properly lectured CEOs more than once in recent months.

One doesn’t readily think of financial institutions as trailblazers in technology, compared with, say, telecommunications, civil aviation or pharmaceuticals. Yet the outperformance of Canada’s Big Six banks relative to global peers owes less to prudence, as commonly thought, than to decades of ceaseless technological upgrading at a cost of billions of dollars a year.

If we saw that kind of commitment in other sectors, notably retailing and traditional manufacturing, we’d have a far more competitive economy, something closer to full employment, and rising household incomes.

The Canadian challenges cited above can be met, and sooner rather than later, in a country already benefiting from outsized blessings. “For Canada,” said OECD spokesman Matthias Rumpf last week, “it’s [a] fairly young population, [a] fairly well educated workforce, and you have all these natural resources that give you higher growth than other countries.”

Lower commodity prices figure into Flaherty’s cautious financial statement Tuesday. But resource demand will remain strong as Europe recovers, the U.S. recovery strengthens, and a rapidly growing China and India each surpass the U.S. in GDP by 2060.

Yet demographics might be Canada’s highest card.

Canada’s birthrate is low, barely enough to match the “replacement rate” of those who die or emigrate each year. But, to its credit, the Harper government has maintained throughout the Great Recession years Canada’s status as the per-capita leader among its peers in welcoming immigrants.

And that’s the key to Canada’s forecast continued population growth, to be exceeded only by a U.S. whose much higher fertility rate will see its population soar about 40 per cent by mid-century.

Meanwhile, the populations of Japan and Russia already are in decline, with Germany and much of Western Europe to follow in contraction. China’s one-child policy, in place since 1978, will quadruple the ratio between working-age people and retirees over the next 50 years. This “old-age dependency ratio” is a challenge for all economies as they become affluent — a transition always accompanied by lower birth rates — though late-1970s Beijing planners greatly worsened the problem.

But Canada’s longstanding open-door immigration policy, coupled with ramped-up efforts to secure productivity gains, can ensure that we don’t burden a shrinking working-age population with more than it can bear in financing a healthy life for generations of retirees expected to live longer than their predecessors.

If demographics is destiny, Canada is poised to thrive economically for decades to come.


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