The economy in Canada is proving to be resilient in the face of adversity, Finance Minister Jim Flaherty told a Toronto business audience Monday.
Challenges include the U.S. housing market, volatile financial markets, the strong Canadian dollar, energy prices and an aging population, he said.
But “Canadians and Canadian businesses have been resilient in the face of economic adversity.”
While this country's economy is closely tied to its southern neighbour, “we are not the United States,” Mr. Flaherty told a breakfast audience at the Economic Club of Toronto.
Canadian banks are well-capitalized, the housing market here is more solid, more Canadians are working now than ever before, and Canada is one of the few countries in the world with sound public pension plans, he said, adding that new employment figures that came out on Friday were “promising.”
“Work is being carried out to make our system better,” Mr. Flaherty added, noting that he met two weeks ago with the chief executives of Canada's big banks and will monitor changes they are making in areas such as disclosure.
While he said that “Canadians are confident for good reasons,” and the economy is strong, the finance minister did raise one potential trouble spot. “We're concerned about savings in Canada,” he said. “We have been monitoring the mortgage market, as we do, and we've seen an inclination now, a trend, toward longer-term amortizations and smaller down-payments and that is a matter of some concern. We're continuing to monitor that, to watch that.”
Mr. Flaherty also said that “higher gas prices are a reality.”
But, on another bright spot, while there is global concern about rising prices and inflation “Canada has been relatively protected from the inflationary trend elsewhere because of the relatively high value of the Canadian dollar, which affects positively the price of imports,” he said.
A research note released by BMO Capital Markets deputy chief economist Douglas Porter on Monday backed up Mr. Flaherty's largely positive take on the economy.
Canada's overall inflation rate has dropped in the past year to just 1.4 per cent, the second lowest in the world above only Japan, Mr. Porter noted. And subdued inflation has helped spur “some very hefty real wage gains for Canadians in the past year,” he added. Average hourly wages have risen 4.3 per cent from a year ago, nearly three percentage points faster than inflation, he said.
Moreover, the job market is strong and “even as manufacturing employment contracts in response to the strong Canadian dollar, the simple fact is that all other industries are more than offsetting the weakness,” Mr. Porter wrote. “Employment is up 2.1 per cent in the past year, slightly topping the pace of the prior five years.”
He added that “there is still precious little sign that the global credit crisis is making a real-world impact on the Canadian economy. Broad system-wide business and household credit has risen at a 9.9 per cent annual rate since the credit crisis broke, virtually unchanged from the 10 per cent pace in the prior period.”
While it is true that the six-year boom in Canadian housing is over, and the days of double-digit increases in sales and prices are in the past, “that does not mean doom is right around the corner,” Mr. Porter said. The market's still healthy and falling interest rates coupled with solid income growth should help avert a major slowdown this year.
© The Globe and Mail
