Philip CrossKey indicators paint a bleak picture of the Canadian economy, MLI Munk Senior Fellow Philip Cross shows

OTTAWA, Dec. 15, 2016 – Reduced savings, growing government debt, and a manufacturing sector that has defied policy-makers’ hopes for growth dominated the economy last quarter, the latest Macdonald-Laurier Institute quarterly economic update finds.

MLI Munk Senior Fellow Philip Cross says there isn’t a lot to get excited about: We have seen the national saving rate decline from over 10 percent before the financial crisis, to 6.6 percent in 2014, and below 2 percent so far in 2016. Corporations posted a deficit of $19.7 billion this past quarter, after a $26.7 billion shortfall in the previous quarter.

To read the full quarterly economic update, click here.

The image of firms sitting on piles of so-called “dead money,” as coined by former Bank of Canada Governor Mark Carney, if it was ever true, clearly has been discredited after the rout in oil prices erased profits in the oilpatch, according to Cross.

Also, governments ran a total deficit of $37.6 billion, nearly $10 billion more than the previous quarter. However, none of the increase reflects the promised “stimulative” higher spending on infrastructure, as government spending on fixed investment rose by only 0.8 percent in the past four quarters, a marked slowdown from year-over-year growth of nearly 5 percent in the summer of 2015.

Despite the rebound in energy exports in the third quarter, the total volume of exports remains 0.3 percent below their level in the third quarter of 2015. In particular, exports of manufactured goods have not responded to the lower value of the Canadian dollar as the Bank of Canada had expected. Some analysts have been quick to blame the loss of competitiveness on the rising exchange rate before the recession (the so-called “Dutch Disease”). But it has become clear that the loss in capacity over that period was not great.

The Bank of Canada has begun to change its tune. It now cites a wide range of policies that affect the attractiveness of investing and producing in Canada (some specific to Ontario) that a 25 percent drop in the exchange rate has not overcome. These include “energy cost differentials, rising non-tariff barriers, uncertainty about the status of current and future trade agreements, and slow and complex project approval processes.”

The fundamental problem, as outlined in Cross’ recent paper for the Macdonald-Laurier Institute, is that eight years of stimulative monetary and fiscal policies have reduced their effectiveness to the point that they are harming the underlying productive potential of the economy.

Cross’ quarterly economic updates are meant to be a companion item to his monthly Leading Economic Indicator updates.

The Indicator is available on Bloomberg and is intended for journalists and analysts who follow the macro performance of the Canadian economy. Quarterly economic analyses by Cross, based on the results of the indicator, will appear on the MLI website.

To see past Leading Economic Indicators, click here.


Philip Cross is a Munk Senior Fellow with the Macdonald-Laurier Institute. He previously served as the Chief Economic Analyst for Statistics Canada, part of a 36-year career with the agency.

The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.

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