The Organization for Economic Co-operation and Development, in a report released Wednesday, says resource development — primarily in Western Canada — is causing an economic imbalance in the country. “I do believe it’s going on. You can’t deny it,” Peter Jarrett, one of the authors of the report, told reporters in Ottawa. Mr. Jarrett said more needs to be done “to develop other sectors of the economy if [the country] is to maintain a high level of employment and an equitable distribution of the fruits of growth.” “Basically, I think it’s a political choice for Canadians,” he said, adding that it’s up to governments to decide “where they want to step in and do something about it.” Dutch Disease — a phrase that refers to the decline in the manufacturing sector in the Netherlands after the development of its oil resources in the 1970s — recently became an issue in Canada after NDP leader Thomas Mulcair expressed concern about the term to describe the shift in this country’s economy the eastern manufacturing hub to the resource-heavy western province. That has contributed to a stronger Canadian dollar as global commodity prices soared, making exports of our manufactured products more expensive. (via fp)
- ‘Alberta remains the most affluent province, thanks to its energy wealth’
- Last month, the Pembina Institute concluded that “oilsands fever” is “beginning to create clear winners and losers in Canada’s economy,” while another study by the Macdonald-Laurier Institute found that “benefits are both substantial and surprisingly broadly distributed nationally.”
- Without using the phrase Dutch Disease, the OECD report says “income has shifted towards the resource-rich western provinces, while the regional economies of Ontario and Quebec are still adapting to increase external competition resulting from the high exchange rate.”
- “The export-oriented manufacturing sector had by 2011 shrunk sharply to only 12.6% of total value added, down from a peak of 18.6% in 2000. Its share of employment has also fallen substantially over the past decade from 15.2% to 10.2%, and somewhat more than in the United States,” the report says.
TS focuses on productivity:
- Productivity has long been Canada’s Achilles heel, said Derek Burleton, deputy chief economist at TD Economics.
- “Nobody has a really confident answer as to why Canada has struggled so badly with respect to productivity. It’s a conundrum,” he said. “Some of it is chalked up to culture, not a lot of risk taking. We don’t tend to invest as much in machinery and equipment.”
- But at the same time, the strong loonie, along with higher energy prices that increase the cost of materials and transport, and a weaker U.S. economy, have been devastating to the manufacturing sector, which tends to be among the most productive.
- As a result, manufacturing has shrunk, said Michael Gregory, senior economist at BMO Capital Markets. “By shrinking a part of the economy that tends to be more productive, you end up with a less productive economy overall.”
- On the other side of the spectrum, construction tends to have a lower rate of productivity, partly because very little of it can be mechanized.
- Natural resources also tend to be on the low side. “It’s not that the oil patch isn’t innovative. But the productivity in that sector is really constrained by the fact that companies have to dig deeper and look farther out for new oil because you have depleting reserves,” Burleton said.
- Multi-factor productivity, or the amount of labour, capital, and natural resources needed to produce a unit of GDP, has remained largely the same in Canada since the 1990s, the OECD said.
- “Canada’s overall productivity has actually fallen since 2002, while it has grown by about 30 per cent over the last 20 years in the U.S.” the study said.
- By other measures, Canada’s productivity is increasing by a rate of about one per cent a year.
- At the start of the recovery, U.S. productivity grew at 6 per cent a year, the strongest pace in more than 50 years, Gregory pointed out.
- “We are going to have to become more productive because we’re going to have fewer people working in our society and we have to produce more or there’s less for everybody. It’s about survival in terms of our standard of our living.”
- The OECD recommends the Canadian government provide more focused support for business investment in research and development, by replacing generous tax credits with direct grants.
- The latest Scotiabank Global Real Estate Trends report, released Wednesday, found that the inflation-adjusted national average home price fell by 1.6 per cent in the first three months of 2012 compared to the same period of 2011.
- The OECD forecasts that Canada’s economy will grow by about 2.25 per cent in 2012 and 2.5 per cent in 2013. The optimistic prediction comes amid signs that consumers south of the border are taking a breather. U.S. retail sales declined 0.2 per cent in May, and the 0.1 per cent increase registered in April was revised to a 0.2 per cent drop.
Canada has always had the “problem of resources” but I think our governance was also subpar in certain areas.