CANADA’S ruling Conservatives like to boast that their country weathered the world recession better than any other G7 member. Though they tend to attribute this success to their own policies, one of the main causes was Canada’s conservative corporate culture. Its banks had barely dabbled in subprime mortgages when America’s housing market imploded. That caution, widely seen as a virtue during the financial crisis, now looks problematic in a recovery that is at risk of choking. In 2010 and 2011 Canada’s GDP grew by an average of 2.8% a year, more than America’s and than the economies of other rich commodity-dependent countries like Australia, New Zealand and Norway. The OECD now predicts it will grow by 1.9% in 2012, the same as New Zealand and less than the other three countries. (via Canada’s economy: Hey, small spender | The Economist)
- Meanwhile, consumer spending has been spurred by a housing boom that is often compared to America’s pre-crisis bubble. The central bank has kept its benchmark interest rate at 1% for two years, encouraging Canadians to pile up debt, particularly in mortgages. In Toronto house prices have risen by 8.3% in the past year. Mark Carney, the bank’s governor, has issued repeated warnings about these growing liabilities. Consumers’ ability to borrow and spend may be nearing its limit.
- The government is doing its best to talk firms into investing. Mr Carney has demanded they start spending their “dead money”, which earns little interest thanks to his low rates. “Their job is to put money to work,” he said recently, “and if they can’t think of what to do with it they should give it back to their shareholders.” Jim Flaherty, the finance minister, sounded almost plaintive when he reminded a group of executives last month that the government had reduced tax rates, cut red tape and increased tax incentives to encourage them to invest. “Ultimately, it is up to you in the private sector to take advantage of all of these strengths and to invest, to create jobs and to grow our economy,” he said. For now, however, their entreaties seem to be falling on deaf ears. Michael Holden, an economist at the Canada West Foundation, a think-tank, says that urging firms to move faster was like “people who honk at the car in front of them in a traffic jam”.
- Officials could also push education reform to encourage schools to train bolder executives, though that has not been a priority so far. Bill Currie of Deloitte, a consultancy, says Canada could produce managers more comfortable with risk by making university courses for businesses and engineers broader and more creative, and by teaching more economics in secondary school. But Mr Carney and Mr Flaherty will be long gone by the time such projects bear fruit. Just now the bully pulpit is all they have got.
