Like with any good "capitalist society", its takes a good blend of multiple conditions working hand-in-hand, harmoniously, so as to give us the opportunity to proposer, and to see and have our standard of living increase over time, for ourselves and for our children.
After a horrendous 2008 and beginning to 2009, the past few quarters in Canada are proving to lay the continued foundation for our society to prosper. Will this continue or is it a result 'all that government spending'?
Economy off to a roaring start in 2010, GDP records highest gain in three years
From Julian Beltrame, The Canadian Press, March 31, 2010
OTTAWA - The Canadian economy bolted out of the gate with its strongest performance in three years in January, with robust activity cited in factories, at construction sites, in mines and the oil patch.
The 0.6 per cent advance in the country's gross domestic product will have significant impact on everything from jobs, to interest rates and even government deficits if its a sign of things to come, economists say.
The dollar, which was up all day, closed up 0.35 cents at 98.44 cents U.S.
It was especially good news for Canada's battered manufacturing sector, which gained 1.9 per cent on the month. This week, both Honda and General Motors announced plans to hire more workers.
"The main message is that the economy has been a lot stronger than even the biggest optimists could have hoped for," said Douglas Porter, deputy chief economist with BMO Capital Markets.
"The economy has risen at better than a five per cent pace the past six months now...that's the best six months since the very height of the tech boom in early 2000," Porter said.
Porter says it likely means Bank of Canada governor Mark Carney will almost certainly raise interest rates in July and could move even sooner. And when he does, it may be a half-point hike that would push mortgage rates higher.
There are also implications for Ottawa's estimated $49-billion deficit this fiscal year, which was based on a 2.6 per cent growth rate. It now could be bettered by a full point, which would mean government revenues will rise and costs, for such things as unemployment benefits, will fall.
Finance Minister Jim Flaherty couldn't resist a shot at Liberal Leader Michael Ignatieff, saying that while Canada is "not out of the woods," the numbers show the government's policies are working.
"We need to stay the course ... and unlike the leader of the Opposition, we're not going to kill jobs by raising taxes," he told the House, a reference to Ignatieff's proposal to delay business tax cuts.
Stronger growth will likely also result in demand for more workers. In another strong economic report issued Wednesday, Statistics Canada said the total hours worked by payroll employees increased 0.3 per cent in January, a precursor to job gains.
A big question remains, however, about what happens with the recovery in the United States, since about three-quarters of Canadian exports head south.
But even there, there was an encouraging signal with the U.S. reporting a strong pick up in factory orders, following an upward revision for the previous month.
"No ifs, ands, buts or excuses," said Scotia Capital economist Derek Holt. "The V (shaped recovery) is even more alive at U.S. factories than previously thought."
Such robust growth coming out of recession is what historically happens as pent up demand, combined with the arithmetic of a smaller baseline, inflates growth numbers. But it wasn't supposed to happen this time because of the continuing uncertainty over the viability of the global financial system and the belief that U.S. consumers were tapped out.
In an interview, Bank of Canada senior deputy governor Paul Jenkins suggested growth may just be getting advanced by extraordinary government stimulus and low interest rates, as well as temporary factors. In other words, the surprisingly strong numbers may not last.
"When you've got that type of stimulus at play, particularly at turning points ... you can get more demand pulling forward," he said.
In January, the Bank of Canada estimated fourth-quarter growth for 2009 would come in at 3.3 per cent, while predicting first-quarter growth for 2010 at a slightly higher 3.5 per cent. The fourth quarter actually turned in a five per cent performance and economists now project the first quarter at between five and six per cent.
In the last five months, the economy has already recouped more than half of its recession losses, with output now up by 2.7 per cent from last May's low.
The rebound has surprised economists, given that the U.S. economy, although it has posted impressive GDP numbers as well, remains in the dumps in the area that impacts Canada most, consumer spending. As well, the U.S. has yet to stop bleeding jobs, while Canada has gained 160,000 since July.
Queens University economics professor Thorsten Koeppl credits the strong performance to the resilience of Canadian households, which have not been hit by a major loss in net worth given that house prices have held. In turn, Canadian consumers appear to be optimistic enough to fuel domestic spending.
But while short-term prospects appear strong, economists also cautioned that, longer-term, things are not quite as rosy.
CIBC analyst Krishen Rangasamy noted manufacturing is getting a one-time bump from the restocking of inventories in the United States. With American stimulus spending receding, a slowdown in the latter half of 2010 in the U.S. would also likely have an impact on Canada.
As well, with each good economic report in Canada, the loonie gains in strength, setting the stage for pain in the export sector later on.
There also remains major weaknesses in the Canadian economy. The output gap is still about two per cent below capacity and employment, while improving, is about 260,000 jobs lower than where it stood in October 2008, and that doesn't account for population growth.
But Porter also offers some reason for optimism. Just as it was not written in stone that the first half of 2010 was going to come in like a lion, there is no guarantee the second half will go out like a lamb, he said.
"I don't think it's a foregone conclusion things will taper off so adversely in the second half of the year," he said. "One has got to be impressed with what is going on in manufacturing, and there's lots of room for manufacturing to grow still."
Saverio Manzo
saveriomanzo.blogspot.com
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