With an apparent two consecutive quarters of decline, Canada’s economy is exciting speculation from commentators across the world who, until recently, marveled at this country’s resilience through the 2008 global financial crisis. The Economist, iPolitics, and The Financial Post turned to Philip Cross, Senior Fellow at the Macdonald-Laurier Institute, to help analyse Canada’s economic troubles.
Apart from last year’s unexpected drop in oil prices, Cross points to the decline in Canadian exports to the U.S. as reason for the observed slump. But this decline, he tells The Economist, is only temporary, and he expects it to clear up soon, reigniting production and investment in Canada.
Overall, Cross is positive about Canada’s economic outlook. “I would not declare a recession until I was sure it would survive every possible revision”, he tells Claire Brownell in The Financial Post, adding that a 0.1 percent decline in GDP might easily be “revised away”. This point was picked up on in a column by L. Ian MacDonald in an iPolitics column.
For this reason, Cross warned against cutting interest rates too quickly, as a knee-jerk monetary policy reaction (the Bank of Canada on Wednesday did cut rates a quarter point). In a column for The Financial Post, Terence Corcoran cites an earlier column by Cross in which he described the dampening effect that lowering interest rates has for long-term economic growth.
Cross noted in his Economist interview that the share of income required by Canadians to service their debts is currently at an all-time low, but eventual higher interest rates could create a challenge for them.