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PostPosted: Fri Jan 12, 2018 10:42 am    Post subject: Canada's economy predicted to wane next year Reply with quote

Canada's economy to 'wane,' says internal memo to finance minister
Canada's economy headed for five years of 1.7% growth, minister told, suggesting cautious Budget 2018
By Karina Roman, Dean Beeby, CBC News Posted: Jan 12, 2018 5:00 AM ET Last Updated: Jan 12, 2018 6:18 AM ET

An internal memo for Finance Minister Bill Morneau forecasts a tepid Canadian economy for the next five years. (Sean Kilpatrick/Canadian Press)

The note for Finance Minister Bill Morneau, obtained by CBC News under the Access to Information Act, forecasts average annual growth of just 1.7 per cent this year through to 2022.

That slower-growth number has big implications for federal tax revenues and annual deficits, and suggests Morneau has little wiggle room for spending in Budget 2018.

Craig Alexander
Economist Craig Alexander says the internal Finance Department memo is in line with private-sector economists' views. He suggests Morneau needs to be cautious about revenue expectations in Budget 2018. (CBC)

The Canadian economy has been firing on all cylinders for about a year, averaging 3.7 per cent growth, with the jobless rate recently hitting a record low.

"This very rapid pace of growth is not sustainable going forward as … transitory factors start to wane and interest rates will likely continue rising," says the bleak Oct. 4 note, ordered by Morneau and drawing on internal economic analyses.

"Potential growth is expected to remain low at about 1.7 per cent over the medium-term …."

The department's assessment, made three months ago, is generally in line with current forecasts by private-sector economists, who note slow growth in Canada's labour force because of an aging society, and the lack of businesses investment in equipment needed to boost labour productivity.

Need to plan
"The main message here is the strength that we had in 2017 is an outlier," said Craig Alexander, chief economist with the Conference Board of Canada, who reviewed the memo for CBC News.

"Canada can't sustain economic growth rates of three per cent or higher.… The pace of economic growth inevitably will slow, and the government has to plan for it."

The memo, with sections blacked out as "advice," says Ottawa has options for goosing the economy, including policies to keep more older Canadians in the workforce; to boost the number of working women; and to open the doors to more immigrants.

But these options would nudge growth to perhaps two per cent, still a big drop from the heady years between 1995 and 2008 when GDP averaged 2.9 per cent annually, says the document.

The bureaucrats who wrote the memo do not offer specific policy options, although they note that by increasing the eligibility age for private and public pension plans, such as the Canada Pension Plan, Ottawa could keep older Canadians working longer.

But that option may be politically toxic, since the new Liberal government in 2015 reversed a Harper-era policy that raised the eligibility age for old age security, or OAS.

We should face it -- the hot economy owes a lot to the revival going on in the USA. But economic predictions are notoriously flawed. Obviously, any short-term economic predictions depend on the chances the predictors give Donald Trump of pulling it off. So far, so good.

However, the Americans are going for 4%+ sustained growth. I am sure most economists are cynical about that. So they may be underestimating it. The odd irony is that Justin's best argument for continuing in office -- other than there is nobody challenging for his job -- is Donald Trump, the man he likes to prance around ridiculing.
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Canada's economy predicted to wane next year

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