Bank of Canada Hiccup’s on Canada’s Economic Activity

Are the winds of change about to blow through Chatham-Kent?  Well, I sure hope so.  No, I’m not talking about the political winds of change.  I don’t know if any of our prospective municipal politicians read this column last week.  However, I hope they did take it to heart.  I’m talking about some “actual winds.”  What this place really needs before Election Day on November 13th is some sun, lots of wind and a whole bunch of change.  Chatham-Kent’s agricultural economic engine needs to dry out.  With winter looming, nobody wants to go there.

Around these parts it has resembled Burnaby B.C., without the mountain.  Cloudy and consistent rain over a period of the last six weeks has seriously compromised the local harvest.  At a certain point, farmers just have to “go after it” disregarding the degradation to the land, themselves and their soul.  We are not there yet, however that time is coming.  Let’s hope November brings drought to Chatham-Kent.

So when the drought comes in November our economic eyes can turn elsewhere.  Being the only municipality with out-migration along the Windsor-Kingston 401 corridor certainly doesn’t earn us a badge.  The problem is everybody around us is prospering.  In addition to that when things turn even slightly south for those people, we catch pneumonia.  That’s just what I picked up last week when our old friend Bank of Canada governor David Dodge went before the House of Commons Standing Committee on Finance.

The following is part of what Bank of Canada Governor David Dodge said to the House committee on October 19th.

“In our latest Monetary Policy Report, which we released this morning, we judge that the Canadian economy is currently operating just above capacity. While global economic growth is expected to be a little higher than previously anticipated, a weaker near-term outlook for the U.S. economy has curbed the near-term prospects for Canadian exports and growth.
The Bank’s outlook for growth in the Canadian economy has been revised down slightly from that outlined in July’s Monetary Policy Report Update. The Bank’s base-case projection now calls for average annual GDP growth of 2.8 per cent in 2006, 2.5 per cent in 2007, and a return to 2.8 per cent in 2008. Weakness in labour productivity growth has led the Bank to lower its assumption for potential growth to 2.8 per cent for the 2006-08 period. Together, these factors imply that the small amount of excess demand now in the economy will be eliminated by mid-2007.
Core inflation is expected to move a bit above 2 per cent in the coming months but return to the 2 per cent target by the middle of 2007 and remain there through to the end of 2008. Lower energy prices have led to a downward revision of the near-term projection for total CPI inflation. Total inflation (which includes the temporary impact of the GST reduction) will likely average about 1 1/2 per cent through the second quarter of 2007, before returning to the 2 per cent target and remaining there through to the end of 2008.”(David Dodge)

For those of you who are still reading or who feel “economically challenged” let me to some explaining.  In short, Dodge messed up.  He was far more optimistic on his earlier outlooks than he is now.  Storm clouds are appearing on our economic horizon.  Get the mortgage paid.  Work a little bit harder.  Take cover.  We may be in for an economic downturn.

For Dodge to muse about this in my mind it is telling.  Dodge always had the “cajones” to cogitate about good economic times in public.  I often felt that he was wildly optimistic in his economic musings.  However, he was always speaking in generalities because of the dichotomy of Alberta on one hand and Ontario on the other.

The bottom line is the US economy is slowing and this is causing a slowdown in Ontario.  Yes, there is a slowdown coming on the “401 corridor”.  In many ways it is already here.  Read what Derek Holt, assistant chief economist at RBC Financial Group has to say about Ontario’s economy quoted from the October 23rd Globe and Mail. “We think Ontario will narrowly avoid a recession,” Mr. Holt reported, adding that the province’s slow growth is pushing down the nation’s rate.

So it is what it is.  I know.  Nobody has to tell the people of Wallaceburg the Ontario economy is slowing.  Job losses in Wallaceburg have been enormous.  This latest blip won’t be helpful.

Dodge’s latest musings will surely have their political implications as well.  Federal Finance Minister Jim Flaherty has said recently he wants to cut taxes further.  This is in a fiscal environment where economic growth is being cut.  Clearly, if this slight downturn comes to fruition, he’ll have to change his plans.  That 13.6 billion dollar surplus for 2005/06 will be challenged.  Yes, those slight economic growth cuts from Dodge do mean something.  If Flaherty doesn’t make the right fiscal choices, it’ll come back and haunt him.  Ditto for the rest of us.

It’s not like we’re reverting to “Lower Gongoland”.  We aren’t.  However it’s becoming increasingly clear our economic winds are shifting.  How we adjust to this coming change will challenge us all.