Canada's Housing Bubble

Mar 18, 2011 Kim Covert Financial Post

Ottawa — Economically, Canada is like that kid in your class who excels at many things but never becomes more than a middling student because he just can’t get long division, according to a report card released Thursday by the Conference Board of Canada that forecasts a high “C” grade for the year.

"How Canada Performs: A Report Card on Canada," says while the country’s economic record was seen to improve during the recession, that improvement was largely relative to the poor performances by the other member countries in the Organization for Economic Cooperation and Development. Now that they’re rebounding, Canada is slipping backward to ninth place among the other 17 countries in 2011, after placing sixth in the Economy category in both 2008 and 2009. Last year it placed 10th with a low B.

“Canada seems to be slipping back into old patterns as it comes out of the recession,” said Glen Hodgson, the Conference Board’s senior vice-president and chief economist. “Our ranking improved during the recession years — even when our performance did not — because we suffered much less economic damage than other countries.”

And while Canada’s performance on most economic indicators is improving, other countries are improving faster.

The board gives Canada straight As for employment growth and inflation in 2010 — and forecasts it will do so again in 2011 — and the country gets good marks for GDP growth in both years. But its performance is less stellar when it comes to income per capita and the unemployment rate, where it gets a C grade in both areas for 2010 and 2011 — and inward foreign direct investment, where it gets a D in 2010 and a forecast of C in 2011, though it places sixth in both years.

The subjects that Canada just can’t seem to master, however, are productivity, where it ranks 13th out of 17 for both years, earning a C last year and a D this year; and outward FDI (foreign direct investment), where it hasn’t done better than a D grade for much of the past decade, the report card notes, suggesting that “Canadian businesses are not adapting to the forces of globalization as quickly as their competitors in other major OECD countries.”

“Canada’s projected weak performance on labour productivity is the flip side of its projected strong employment growth,” Mr. Hodgson says. “As the economy recovers, Canadian firms have boosted output by concentrating on growing their workforce, rather than focusing on productivity growth. Ideally, Canada should be aspiring to achieve A grades on both indicators, since this would indicate an economy that is optimizing wealth creation (through productivity growth) that is widely shared (through employment growth).”

According to the board’s calculations, the top five countries in terms of economic performance in 2010, in order, were Sweden, Switzerland, Belgium, Australia and Norway; in 2011 the top five are forecast to be Australia, Sweden, Belgium, Norway and Switzerland.

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