Not yet time for second round of stimulus despite job losses: Flaherty
Published Thursday July 9th, 2009
OTTAWA - Finance Minister Jim Flaherty has ruled out further stimulus to help out an economy that continues to flounder and shed jobs, despite the occasional encouraging sign.
With economists forecasting Statistics Canada will report further job losses Friday, Flaherty said that was "regrettable" but not surprising.
He said past recessions have shown there is a lag between when the economy turns around and when jobs begin to be created.
"We will see the real economy start to recover, but we'll see unemployment numbers worsen for some time even after the real economy starts to recover," he said, adding that likely will occur late this year.
The minister would not speculate on how many jobs will be lost, but on Wednesday, parliamentary budget officer Kevin Page estimated as many as 100,000 will disappear this summer.
Economic indicators have been disappointing in the past few weeks, after some encouraging signals last month, leading to calls in the U.S. that a second stimulus package may be needed.
But Flaherty said the best response is to ensure that the stimulus already announced is spent and quickly.
"I don't think the time is here where we would consider further stimulus spending. The key is to get spending out the door and the federal bureaucracy has been working hard and with some success to accomplish that," he said.
Canada received some good economic news Thursday, but also a harsh reminder that the economy remains in a severe recession and has yet to turn the corner.
Housing starts jumped eight per cent, the second straight monthly gain, but the annualized pace of 140,700 units is only at about two-thirds the levels seen before the downturn began last fall.
And Export Development Canada threw more cold water on anyone reading too much into evidence that the economy is not falling as fast as a few months ago with a bleak forecast for the export sector, which makes up about 35 per cent the country's gross domestic product.
The Crown corporation said Canadian exports of raw materials and manufactured goods will tumble another 21 per cent this year and only grow from that new bottom by six per cent next year.
EDC chief economist Peter Hall said Canadians should take recent talk of an economic turnaround with a large grain of salt, adding that real recovery will not happen until 2011.
"You can't have confidence alone driving the world economy up, you have to have more than that," said EDC's chief economist Peter Hall, "and more than that is fundamental markets like the consumption of durables, the auto sector, and housing."
To this point, that has yet to materialize, he said.
The less-bad-but-still-bad theme is widely expected to continue Friday with release of June unemployment figures.
The average among economists is for another 35,000 jobs to have vanished during the month and for the jobless rate to rise to 8.7 per cent from the current 8.4 per cent.
That coincides with the report Wednesday of parliamentary budget officer Kevin Page, who estimated another 100,000 jobs would be lost in Canada during the summer, on top of the 363,000 already lost since October.
But a worse result is not being discounted and would send a negative signal to already shaken equity markets that have started to reconsider the talk of so-called "green shoots" pointing to an economic spring.
Jobs are among the last indicators to shift from negative to positive, but they are also among the most current and June's numbers will be an indicator of where economic activity stood just a month ago.
The leading indicator economists are watching closely is the U.S. housing market, which was the catalyst for the recession, and that market, unlike Canada's, is still in the dumps.
"We've said it before and we'll say it again - the long-awaited economic recovery probably won't start until housing markets stabilize," said senior economist Sal Guatieri of BMO Capital Markets.
Guatieri said after tumbling by 34 per cent since 2006, existing home sales have only risen a paltry six per cent.
Hall agreed that a turnaround remains in the distant future, noting there are about five million units on the American market, about a year's worth of sales at current rates.
Hall said Canada's open economy is so tied to the U.S., and the world, that there cannot be a major rebound in Canada until it occurs in foreign markets.
But with global demand for Canadian goods likely to remain weak another 18 months, particularly in the U.S., Hall forecast exports of commodities such as energy, fertilizers and base metals will fall off an average of 38 per cent his year, and manufactured goods will fall 22 per cent.
The one benefit from weak global demand of oil, he added, is that the Canadian dollar will likely slide to the 83-85-cent US range over the period, giving some relief to exporters.
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