Economy to ‘muddle along’

After Canada was dragged into the worst economic recession since the 1930s, it would be well over a year before the economy began its recovery.

But many wonder what sort of resiliency is to be expected in the coming years and just how susceptible the market may be after its downfall and outright contraction.

To generate some answers, the Laurier Centre for Economic Research & Policy Analysis (LCERPA) along with the School of Business and Economics (SBE) hosted an economic outlook session at the Communitech Hub in Kitchener.

The event featured keynote speaker Craig Alexander, senior vice-president and chief economist at TD Financial Group, who was asked to address primary economic issues and expected growth trends.

“History has shown that the worse the recession, or contraction, the stronger the boom in the recovery,” said Alexander.

Given the severity of the recent recession, growth rates should have been upwards of six per cent.

However, since the cause of the decline was a financial crisis as opposed to inflation-related issues, it is typical that recovery is much slower.

In Canada and other developed nations, markets have rebounded, but with moderate growth rates of two to three per cent, which seems disappointing in comparison to emerging markets such as the developing giants China and India who are experiencing the largest growth rates at close to ten per cent.

The main worry is the occurrence of a “double dip” in which the economy would slip back into another recession.

“We think there is a one-third chance of (a double dip) happening, but it is not the most likely scenario,” Alexander predicts.

He expects that the Canadian economy will “muddle along” at a 2-2.5 per cent annual growth for the next two years, limited by the United States’ weak housing market and unemployment rate, which is realistically 16 to 17 per cent when including discouraged and underutilized workers.

“40 per cent of the economy is trade and 76 per cent of [Canada’s] trade is with the U.S.,” pointed out Alexander, illustrating that the wellbeing of the Canadian economy is steadily dependent on that of the United States.

“There was nothing fundamentally wrong with the Canadian economy before the financial crisis and the financial system seized up.”

Alexander expects rock-bottom interest rates to remain low and the Canadian dollar to average at least parity with the U.S. over the coming year and well above that in 2012.

One particular area of expected growth is in business investments — a promising trend for the Waterloo Region and its technological sector.

With below-average unemployment rates, the region has already experienced a marginally better rebound than the rest of the nation.

Start-ups and new ventures are a means of fuelling growth and increasing the country’s productivity, which Alexander says is far too low.

“Canada’s biggest issue, besides the budget deficit it faces, is its atrocious level of productivity.”