Canada's Economic Growth Disappoints

Bank of Canada’s Poloz Says Economic Growth Disappointed

Bank of Canada Governor Stephen Poloz said his country’s economic growth has disappointed, even as it shows gradual signs of regaining momentum.

“It’s fair to say that growth has disappointed us to this stage,” Poloz told reporters today in Washington, where he is attending a meeting of Group of 20 officials. “We are behind where we thought we would be let’s say a year ago, or even for that matter 6 months ago.”

Senior Deputy Governor Tiff Macklem said earlier this month the nation’s economy will expand more slowly than the central bank had been forecasting as stronger exports and business investment remain “elusive.” Macklem, in an Oct. 1 speech, said that gross domestic product will need to expand faster than 2.5 percent to reduce the slack in the economy, a pace that isn’t likely to be met in the second half of 2013.

“What we need is growth that is significantly above 2 percent to begin reducing the excess capacity that we have in the economy,” Poloz said, adding there are some positive indicators, such an increase in the number of companies being created.

IMF cuts Canada 2013 Growth Forecast 

The Washington D.C.-based fund said Canadian gross domestic product will probably expand 1.6% this year--the same pace as the U.S.--a bit down from its July prediction of 1.7%. 

My view:

Despite ultra low interest rates and deficit spending, the Canadian economy is running just above stall speed at 1.6%.

If one deducts the amount of deficit spending (1.0% of the total), an economic stimulant, as a percentage of GDP from the headline number the results are more revealing - the real economy is only growing at 0.6%.

So where does this leave us, five years into the so called "recovery"?

If the only way the Canadian economy can grow (albeit very slowly) is through near zero interest rates and large amounts of deficit spending, our economic health is precarious indeed.

It appears that any significant increase in interest rates would derail this very modest recovery and lead to more bond buying by central banks to help the "recovery".

Such a fragile economic environment is highly vulnerable to an external shock, in my view, and then back into recession we go.