OTTAWA – I have to admit it; Ottawa is a funny place sometimes. All of the oxygen in the capital over the summer has been taken up by a number of minor scandals – the billion dollar G8-G20 boondoggle, the attack on the census, and the phony debate on the Long Gun Registry that is still weeks away from a vote. It’s not to say these issues aren’t important, but the extensive and relentless coverage of these mini-scandals makes me wonder if the national media are asleep at the switch and have failed to notice that Canada is possibly heading towards a double–dip recession.
Now, I’m not prepared to say that the economic sky is falling – yet – but it would foolish to not acknowledge the economic storm clouds that are clearly gathering on the horizon. Home prices are rising while home sales are plummeting, the HST is driving up prices on many consumer goods and increasing the inflation rate, and the US economic recovery is rapidly stalling while Canada’s recovery is slowing. Individually, each of these issues would be little cause for concern, but together they could feed off of one and other and spell real trouble for our economy over the rest of this year and 2011.
The home price issue is of particular importance because the situation in Canada is starting to look an awful lot like the situation in the United States in 2008, and which tipped in that country in a very intense recession. Some analysts are starting to declare that the Canadian housing market has already entered a similar ‘bubble’ phase and claim that sky high home prices and falling demand means that the bubble could soon burst. If this is in fact the case, then home prices will crash, dragging down the net worth of millions of homeowners who will then have to pay their inflated mortgages as the value of their property declines. Since families will be dumping their money into inflated mortgages there will be less wealth to spend on consumer goods which could then drag down retail sales, and so on and so forth until all of the dominoes have fallen.
The ill-advised and ill-timed implementation of the HST in Ontario and British Columbia is also taking a huge toll on our economy as well. Thanks to the Harper-McGuinty agreement on the HST the price of gasoline, utilities, and many other items rose at annual rate of 2.9 percent in June throughout Ontario. Families with two children can also expect to pay between $1000 and $2000 more per year in taxes as a result of the HST, which means again that they will have less to spend on consumer goods. As the federal Conservatives and provincial Liberals quickly and quietly abandon their claims that this is a ‘revenue neutral tax change’ our families are left holding the bag, and the broader economy takes another hit.
And finally, the most troubling signs that we could be heading towards a double-dip recession comes in the form of the latest GDP numbers for both the US and Canada. Uninterrupted and generally increasing economic growth is especially important during periods of economic recovery, but US growth is slowing dramatically and analysts have downgraded their expected growth for the year to just 1.6% from 2.4% from a month earlier. Because the US purchases about 73 percent of Canada’s exports, a wobble or decline in their growth and GDP numbers will mean that there is less demand for our products, and will ultimately hurt our own economic prospects. To make matters worse, Canada’s own GDP numbers released last week also failed to impress in the last quarter coming in at just 2.0% growth – a full point lower than the 3.0% forecast released by the Bank of Canada just a month earlier.
Given the above warning signs and the very real possibility that we could be headed into a double-dip recession I plan on focusing on economic issues above all others heading into the fall session. I’ve spent the entire summer speaking with people throughout the riding, and they told me that they want our federal government to improve domestic conditions for the tourism sector, explore ways to retract or undo the HST at the federal level, secure and improve the CPP and private pension plans through my Private Members’ Bill C-501, and establish a new job growth strategy – especially for northern and rural areas that have been affected by the forestry and manufacturing crises.
I will certainly deal with other issues as they arise, but the economy is clearly your priority, and so it will be mine during the fall session.
For more information on the economic issues discussed in this week’s column please visit the following websites;
Housing bubble threat resurfaces in report – Canada Press via MSN
HST drives up Canada’s inflation rate – CBC
Canadian economic growth disappoints – National Post
Until next week…John.