The National Post reported today that despite Canada's good economic numbers in 2002, economists tell us us we don't really have much to be excited about:
|Economists: Bad news is bad news. Good news is also bad news.|
Though the Canadian economy is forecast to have registered a 3.4% growth rate for 2002, which would rank it first among G7 countries and a full percentage point higher than the growth rate for the U.S. gross domestic product, economists say the gain has more to do with cheaper exports from a weak loonie than from any fundamental advantage such as higher productivity.
"The Canadian dollar is the only thing that has kept us in the game," said Leo de Bever, senior vice-president for research and economics at Ontario Teachers' Pension Plan Board, at an annual forecast luncheon sponsored by pension fund company Watson Wyatt.Dr. de Bever goes on to tell us that -- because of the low dollar -- we have no reason to be satisfied with our 2002 performance vs. the United States.
On the other hand, other economists at the same meeting tell us that we may be in trouble because our dollar is getting too high.
Moreover, Canada's economic success may also be its own downfall: Strong growth, particularly in the manufacturing and automotive sectors, is one of the factors that could lead to a rising dollar and economists say a higher currency could choke off Canada's stellar growth because it would make the country's exports more expensive.
"One sector that concerns me is the manufacturing sector," said chief economist Patricia Croft at Sceptre Investment Counsel in Toronto. "If forecasters are right calling for a US70¢-plus dollar this year, then I suspect many of those manufacturing jobs are at risk."Now, it seems to me that there are some contradictions here.
Even a non-economist can see that these statements imply a connection between our dollar's US exchange rate, and our relative competitiveness with the United States. A low dollar is a crutch when we are less competitive. As our economy grows stronger and our businesses become more competitive, the exchange rate is influenced and our dollar may rise. If the dollar (for whatever reason) gets too high relative to our productivity, it makes our exports less competitive and it hurts our economy.
In 2002, Canada's economy grew faster than the Americans', and it produced many more jobs. Maybe the low dollar helped. But, if you look at exchange rates for 2002, you'll see that the dollar was also climbing through the year. The Canadian dollar was at its lowest (relative to the US$) in January. Our exports weren't "cheaper" this year. How can it be said that 2002's success was merely because of a "low" dollar when, relative to the beginning of the year, the dollar was actually high? 2002 was a good year.
As for the dollar getting too high, and "choking off growth", this is one of the ways that Canadians can be encouraged to continue to become more competitive, and more productive. Ideally, in 2003 we will have another good year of growth, hand-in-hand with a gently rising dollar.
[Update -- Read also here, in the Jan 25 Toronto Star: Canada a butt-kicking polar bear on right track]