If all the economists were laid end to end they would never reach a conclusion – George Bernard Shaw
One of the main tools economists use to forecast economic growth is to estimate gross domestic product (GDP) for a country or province for a few years ahead. Since 2000 Canada has been growing about 2.4% annually, which is the highest rate in the developed world. While we all cheer our track record, continued growth isn’t a foregone conclusion. GDP is the value of goods and services produced in the country or region.
In Alberta, our energy industry is the big piston driving the Alberta economy. Our growth is tied closely to energy prices. We have experience a spectacular growth spurt.
- In 2000, the value of all goods and services was about $200 billion.
- By 2015, it had grown by 50% to over $300 billion. Then the price of oil and gas fell, that explains the recession (-3.8% GDP of $288 billion in 2016).
So what about the future?
The forecasts for Canadian economic growth are estimated to be about 2.3% in 2018 but declining to 2019 to 1.5% and beyond. Alberta is clawing its way out of recession and economic growth is expected to be about 2.1% in 2018 and 2.3% in 2019.
The trouble with economists is that they are pretty good at forecasting but not so good at figuring out what to do to improve economic growth. They are “on the one hand or on the other hand” people.
The Boston Consulting Group
The Boston Consulting Group (BCG) undertook an analysis of Canada’s prospects for future growth. They found there were significant weaknesses that, if left unattended, could see Canada in the doldrums for many years to come. They found that:
- Most of Canada’s economic successes have been the result of “working harder” (adding labour and capital) rather than “working smarter” (improved productivity and efficiency)
- Ballooning consumer spending drove growth in the past couple of years. Now household debt is at record levels (an average of 171% of annual household net earnings)
- A big part of that consumer debt is mortgages from a somewhat overheated housing market. Canadian house prices rose 31% in the period 2008 to 2016
- A key driver was the energy sector – (that many are so busily trying to “resource development shame”)
- We face an impending workforce gap that will be nearly impossible to bridge through traditional means – (making babies and limited immigration).
The inevitable outcome – as consumers reduce their spending, the housing boom dissipates and energy investment is curtailed – it results in a reduction of 1.5% GDP. Which would leave Canada plodding along at just over 1% annually!
Reform the Economy
- Get rid of interprovincial trade barriers!
- As much fun as it is to argue over licence plates on job sites, stall interprovincial pipelines and battling over beer – it is harmful to economic growth
- Economists believe that these frictions inhibit economy growth by about 7% of GDP.
- Other reforms can reduce economic constipation!
- Reducing restrictions on foreign investment
- Addressing the poor productivity in protected industries
- Encouraging more education in science, technology, engineering and math
- Changing the mix or income and consumption taxes
- Strengthening the technology innovation system.
Transform the Economy
- But BCG says these reforms will not be enough. Some level of transformation of the economy is needed too. These suggestions are generally headed in the right direction.
- Future-proofing the resource industries (this means both adding value and improving environmental outcomes)
- Bringing indigenous and immigrant workers into the mainstream workforce
- Taking advantage of the opportunities of global trade that the USA is leaving on the table
- Moving the “smart cities” agenda forward (A smart city uses different types of electronic data to manage assets and resources efficiently)
- Becoming ‘first movers’ in the next technology wave of the digital revolution – e.g. robotics and artificial intelligence.
The bottom line is that Canada has become somewhat complacent because our economic growth for 20 years has seemed almost automatic. The BCG and many other economists are madly signalling that the next 20 years might not be so rosy.