Home News Canadian Economy Could Enter Recession

Canadian Economy Could Enter Recession

by Archives October 21, 2008

Canada’s economy is slowing down, according to a TD bank report issued on Friday. And with some experts predicting a recession in the near future, Canadians are wondering whether Stephen Harper’s newly re-elected minority government have the economy on the right track.
TD bank chief economist Don Drummond doesn’t know for certain there will be a recession, but with the GDP slowing down over the past nine months, commodity prices dropping and a troubled manufacturing sector, it’s becoming a greater possibility.
“Although some of the latest Canadian indicators have been positive, such as September’s astonishing employment surge, it is only a matter of time, and not much time, before the worsening situation in the American economy spills over to Canada,” said Drummond.
While some will point fingers at the Harper government, McGill University economics professor Chris Ragan said people often overestimate the government’s power during an economic crisis.
“They’ve responded well for a financial crisis, but there’s not much the government can do at this point. Finance Minister Jim Flaherty is on the job, but right now The Bank of Canada is our most valuable tool for fighting a recession,” said Ragan.
Concordia University economics professor James McIntosh shares Ragan’s views.
“The crisis is largely out of the government’s hands. Much of our problems are not of our own making, but due to international markets being interconnected,” said McIntosh.
For Ragan, one key action the government can take is to increase their own spending to stimulate the economy and foster economic growth. Harold M. Waller, a professor of political science at McGill agrees.
“Historically Canada hasn’t done enough to implement growth policies, and I don’t think Harper can do it right now with a minority government,” said Waller.
Waller cites Canada’s failure to develop economic growth beyond the commodities sector as one of the main reasons for the economic slowdown.
Last Wednesday, following his win, Harper announced a six step economic plan that includes a first ministers meeting and a reconvening of Parliament in order to draw up an economic statement by the end of November.
What it doesn’t include are immediate plans to increase government spending to encourage economic growth. One of the six points states government spending will remain focused and controlled.
Generally, the plan didn’t receive positive feedback.
“There’s nothing concrete in there, it’s just window dressing,” said McIntosh.
Waller said the plan is essentially just a bunch of meetings that would happen regardless of a financial crisis.
Waller thinks a decrease in income taxes is also essential for economic growth.
“Harper’s spent so much money on decreasing the GST by two per cent when that money could’ve been better spent decreasing income taxes,” said Waller.
Harper’s economic platform, however, states the decrease in GST helps increase economic growth during an economic slowdown by providing savings of over $3,000 per year to a two-child family with a yearly income of $80,000. The Prime Minister also plans to continue reducing taxes for small businesses and to create a $75 million venture capital fund for innovative companies; among other initiatives that the Conservatives say will stimulate the economy.
Reactions are mixed when asked whether the Harper government has a solid record of keeping their promises regarding the economy.
“Generally that’s true,” said Waller.
According to Ragan, they have a mixed record. “They promised to cut the GST and they did, but they broke their promise not to tax income trusts.”
The major concern for economists right now is what will happen to Canada’s economy if it continues along this path.
“The question is whether we can continue along at this slow growth for another year and then recover or whether we’re going to shrink. The chances are pretty good that we’ll enter a recession,” said Ragan.

Related Articles

Leave a Comment