G7 expansion? Not even close. Canada’s in a league of its own
by Rebecca Wilder
Disclaimer: I’m in Germany, and the keyboard takes some getting used to. Therefore, some of my posts in the coming week will be short and sweet (so that I don’t include characters lik ö, which is sure to turn some heads). Furthermore, blogger spellcheck doesn’t work in English here.
The Q2 real GDP data across the G7 are now in, except for Canada who is always the last to release their statistics. We now know that the G7 expansion has been nothing short of pathetic. Why? Because among the G7, ONLY Canada – the G7 consists of the US, UK, Germany, France, Canada, Italy, and Japan – has fully regained its GDP lost during the recession (it had by Q3 2010 no less). Canada’s in an expansion league of its own.
Hence, the G7 ex Canada remain in “recovery” mode through Q2 2011 and roughly 3.5 years since the previous cyclical peak (see table in reference of post).
(Note: I differentiate “recovery”, or regaining output lost, from “expansion”, or growing beyond the previous cyclical peak, in this post.)
The chart above illustrates real GDP (just “GDP” from here on out) across the G7 around the peak of each country’s GDP during the last cyle, point 0. Only Canada has fully recovered its real GDP lost, having expanded to a level that is near 2% over its previous peak through Q1 2011.
A full business cycle can be measured as the bottom of a recession to the bottom of the next recession, or the trough to trough measure. In the US, the latest cycle lasted 91 months from the trough of the 2001 recession to the trough of the 2007-2009 recession. And here we are, 14 quarters since the peak in Q4 2007, of which GDP is 0,42% below. For comparison, GDP fully retraced the peaks previous to the 1981-82 and 1990-91 recessions in 7 and 6 quarters, respectively (by my quick count).
Even Germany, the wunderkind of euro area growth had not regained its GDP lost as of Q2 2011. And don’t even get me started on Japan.
The ECB is tightening; US Congressional leaders are recklessly endangering the economy; and some euro area governments are pushing through even further fiscal spending cuts to calm market angst. This stinks of policy mistakes – and here in the US, we’re patting ourselves on the back because the economic data do not scream recession yet?
Unbelievable.
Rebecca Wilder
Reference: Business cycle peak dates for chart above
Also posted at Newsneconomics
Is Canada benefiting from it’s tar sands?
I forgot: This stinks of policy mistakes – and here in the US, we’re patting ourselves on the back because the economic data do not scream recession yet?
We/they did the same thing at the beginning of this recession. Rode the slowing GDP all the way down until there was a declared recession. Wonder what would happen if governments started doing something say when GDP fall below 50% of it’s average instead of waitng for the Man to declare that we just hit the bottom. Ouch!
DoLB, this is what Wiki says: “Canada is one of the few developed nations that is a net exporter of energy – in 2009 net exports of energy products amounted to 2.9% of GDP. Most important are the large oil and gas resources centred in Alberta and the Northern Territories, but also present in neighbouring British Columbia and Saskatchewan. The vast Athabasca Oil Sands give Canada the world’s second largest reserves of oil after Saudi Arabia according to USGS. In British Columbia and Quebec, as well as Ontario, Saskatchewan, Manitoba and the Labrador region, hydroelectric power is an inexpensive and relatively environmentally friendly source of abundant energy. In part because of this, Canada is also one of the world’s highest per capita consumers of energy.[25][26] Cheap energy has enabled the creation of several important industries, such as the large aluminum industry in British Columbia.”
To my mind, the most important part is this: “Cheap energy has enabled the creation of several important industries, such as the large aluminum industry in British Columbia.” The difference in policies (energy and environmental) have made us a net importer, when we could be independent, and maybe even exporting.
Norway, Sweden and Denmark are similar exporters and also show similar GDP growth.
Changing environmental and energy policies are core to the conservative jobs/growth plan, and the above countries are examples of why they should at least be considered. Alas, they have approached third rail political status.
CoRev:
While tar sands provide the oil to the US making it the #1 exporter to the US; It is not a cheap source of oil. I would also say Canada is #1 in oil reserves. Proximity to the US and in Canada makes it immune to oil speculators and threats of terrorism. How can they speculate on Canadian oil if it is a safe source???
Run, that is one of the strangest, disjointed, and difficult to understand comments I have read in a long time.
Your analysis of Canada is correct, but it is very much a special case, like Australia (both rich in natural ressources) its growth was driven by exogenous factors. True Canada’s banking sector wether the crisis very well (depsite liquidity issues that were briefly addressed by the Bank of Canada), and that Canadian companies are well positoned. However, Q2/2011 has been “bad news” in Canada with virtually no growth. In large part because of its export sector.
Moreover, Canada has a real issue with housing, where in the major ciites, houe price to income are well above 3.5x (Toronto and Montreal are in the low 5x range — and Vancouver is in the 6x range).