'How strong is the economy Canada's Mark Carney leaves behind?' diff viewer (0/1)

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How strong is the economy Canada's Mark Carney leaves behind?	How strong is the economy Canada's Mark Carney leaves behind?
2013-06-15 23:25:42 UTC	2013-09-30 06:40:49 UTC (4 months later)
Bob Robinson, the good-natured, broad-shouldered boss of Calgary construction firm Westcor, says: "If you can't get a job in this city, you're not trying."	Bob Robinson, the good-natured, broad-shouldered boss of Calgary construction firm Westcor, says: "If you can't get a job in this city, you're not trying."
Calgary is the Houston of Canada: a fast-growing city with a frontier atmosphere. The skyline is punctuated by glass and steel skyscrapers in which oil and gas executives plan multibillion-dollar investments against the distant backdrop of the snow-capped Rocky Mountains, while the eight-lane highways outside are clogged with oversized pick-up trucks.	Calgary is the Houston of Canada: a fast-growing city with a frontier atmosphere. The skyline is punctuated by glass and steel skyscrapers in which oil and gas executives plan multibillion-dollar investments against the distant backdrop of the snow-capped Rocky Mountains, while the eight-lane highways outside are clogged with oversized pick-up trucks.
The oil and gas fields are many miles to the north, around Fort McMurray, but much of the money is made and spent here. The carefree boom times in the runup to 2007 were swept away by the financial crisis; but the continued thirst of emerging economies such as China for natural resources has helped to prop up world prices and new technology has opened up previously unreachable reserves in tar sands –highly controversial among environmental campaigners.	The oil and gas fields are many miles to the north, around Fort McMurray, but much of the money is made and spent here. The carefree boom times in the runup to 2007 were swept away by the financial crisis; but the continued thirst of emerging economies such as China for natural resources has helped to prop up world prices and new technology has opened up previously unreachable reserves in tar sands –highly controversial among environmental campaigners.
So while much of the rest of the world remains mired in economic slump, in Calgary business is looking up.	So while much of the rest of the world remains mired in economic slump, in Calgary business is looking up.
"We are seeing good, steady growth, and that's the way we like it," says Robinson. With the tough-minded independence that is the stereotypical characteristic of the western Canadian, he adds that he welcomed the slowdown, because too much of a "sense of entitlement," had built up before 2007. While some of his rivals did go out of business, Westcor survived and today he's ramping up investment and fretting about skills shortages (the firm recently brought in a New Zealander under Canada's temporary worker programme).	"We are seeing good, steady growth, and that's the way we like it," says Robinson. With the tough-minded independence that is the stereotypical characteristic of the western Canadian, he adds that he welcomed the slowdown, because too much of a "sense of entitlement," had built up before 2007. While some of his rivals did go out of business, Westcor survived and today he's ramping up investment and fretting about skills shortages (the firm recently brought in a New Zealander under Canada's temporary worker programme).
Ann-Marie Lurie, a local housing market economist with the Calgary Real Estate Board, says the picture in property is similar: "We're not in a boom scenario," she says. Gone are the frenzied times before 2007 when investors were snapping up homes online without even seeing them. But prices have risen by 7% in the past year, and the cost of a detached family home here has just regained its pre-crisis peak of around $400,000 (£250,000).	Ann-Marie Lurie, a local housing market economist with the Calgary Real Estate Board, says the picture in property is similar: "We're not in a boom scenario," she says. Gone are the frenzied times before 2007 when investors were snapping up homes online without even seeing them. But prices have risen by 7% in the past year, and the cost of a detached family home here has just regained its pre-crisis peak of around $400,000 (£250,000).
In the pleasant, leafy neighbourhoods of Bridgeland and Kensington, quaint clapboard bungalows are being torn down to be replaced by grander, two-storey suburban homes – with built-in garages so residents don't have to step outside to get into their cars when it's -30C in the winter.	In the pleasant, leafy neighbourhoods of Bridgeland and Kensington, quaint clapboard bungalows are being torn down to be replaced by grander, two-storey suburban homes – with built-in garages so residents don't have to step outside to get into their cars when it's -30C in the winter.
"We did feel the recession, no doubt about it, but we came through it relatively unscathed," says Bruce Graham, director of Calgary Economic Development.	"We did feel the recession, no doubt about it, but we came through it relatively unscathed," says Bruce Graham, director of Calgary Economic Development.
It is economic resilience like this that has helped Canada to ride out the global storm of the past five years far more successfully than most of its rivals, and burnished the reputation of Bank of Canada governor Mark Carney – soon to take up his new job at the Bank of England in London – as a monetary policy whizz. Carney was brought up in Edmonton, 180 miles north of Calgary, and equally dependent on the oil industry.	It is economic resilience like this that has helped Canada to ride out the global storm of the past five years far more successfully than most of its rivals, and burnished the reputation of Bank of Canada governor Mark Carney – soon to take up his new job at the Bank of England in London – as a monetary policy whizz. Carney was brought up in Edmonton, 180 miles north of Calgary, and equally dependent on the oil industry.
"Among the G7, Canada is unique," Carney argued in his valedictory speech in Montreal, modestly titled "Canada Works". Carney went on: "For us, the global financial crisis was an external rather than internal shock. When Canadian policymakers responded quickly and forcefully, our financial system channelled credit to where it was needed and our economy adjusted smartly."	"Among the G7, Canada is unique," Carney argued in his valedictory speech in Montreal, modestly titled "Canada Works". Carney went on: "For us, the global financial crisis was an external rather than internal shock. When Canadian policymakers responded quickly and forcefully, our financial system channelled credit to where it was needed and our economy adjusted smartly."
In Canada, economic output had recovered to its pre-crisis level by early 2011; in the UK, GDP remains almost 3% below its pre-recession peak.	In Canada, economic output had recovered to its pre-crisis level by early 2011; in the UK, GDP remains almost 3% below its pre-recession peak.
But even Carney's most ardent fans – and he has many in Canada – concede that he can't claim full credit for the country's strong performance. The benefit of natural resources, visible on every corner in Calgary, is perhaps the most important of three crucial factors that have helped to insulate the economy from the global storm.	But even Carney's most ardent fans – and he has many in Canada – concede that he can't claim full credit for the country's strong performance. The benefit of natural resources, visible on every corner in Calgary, is perhaps the most important of three crucial factors that have helped to insulate the economy from the global storm.
A tight hold on the purse strings was the second. While the UK entered the "Great Recession" running a deficit, Canada had had more than a decade of surpluses – the legacy of lessons learned during a deep fiscal crisis in the mid-1990s.	A tight hold on the purse strings was the second. While the UK entered the "Great Recession" running a deficit, Canada had had more than a decade of surpluses – the legacy of lessons learned during a deep fiscal crisis in the mid-1990s.
At that time, the government was seen as being unable to get a grip on its spending and financial markets began to lose confidence in the Canadian dollar – comparing the country to Mexico, which had suffered a run on the peso, partly as a result of the perceived weakness of its financial management. US commentators had begun referring to Canada as a banana republic.	At that time, the government was seen as being unable to get a grip on its spending and financial markets began to lose confidence in the Canadian dollar – comparing the country to Mexico, which had suffered a run on the peso, partly as a result of the perceived weakness of its financial management. US commentators had begun referring to Canada as a banana republic.
The Liberal governments of the time, under prime minister John Chrétien and his finance minister Paul Martin, introduced a series of tough budgets and dragged Canada back into the black, helped by rapid growth in the country's major export market, the US, and a gradual decline in interest rates across most of the major economies.	The Liberal governments of the time, under prime minister John Chrétien and his finance minister Paul Martin, introduced a series of tough budgets and dragged Canada back into the black, helped by rapid growth in the country's major export market, the US, and a gradual decline in interest rates across most of the major economies.
Canada's third advantage was its conservative, relatively tightly regulated banking sector. When the boom was in full swing, politicians came under pressure to follow the global trend of deregulating the banks. But unlike New Labour in the UK, the Liberals refused to succumb to the allure of unleashing a swashbuckling finance sector. Instead, Canadian banks faced higher capital requirements than those included in the international Basel agreements and the government retained the power to vary criteria such as loan-to-value ratios on mortgages.	Canada's third advantage was its conservative, relatively tightly regulated banking sector. When the boom was in full swing, politicians came under pressure to follow the global trend of deregulating the banks. But unlike New Labour in the UK, the Liberals refused to succumb to the allure of unleashing a swashbuckling finance sector. Instead, Canadian banks faced higher capital requirements than those included in the international Basel agreements and the government retained the power to vary criteria such as loan-to-value ratios on mortgages.
After Stephen Harper's Conservative government took power in 2006, they did loosen lending requirements, allowing homebuyers to borrow over as much as 40 years with no deposit. But the rule change happened only in 2006, and the lending boom that followed was on nowhere near the scale of the sub-prime frenzy in the US.	After Stephen Harper's Conservative government took power in 2006, they did loosen lending requirements, allowing homebuyers to borrow over as much as 40 years with no deposit. But the rule change happened only in 2006, and the lending boom that followed was on nowhere near the scale of the sub-prime frenzy in the US.
Ed Clark, chief executive of Canada's second-largest bank, TD, says as well as a different regulatory climate, there is an important difference of culture. "The bank CEOs saw themselves as custodians of historical institutions," he says. "I think of my job as one of passing on the institution to my successor in better shape than I got it."	Ed Clark, chief executive of Canada's second-largest bank, TD, says as well as a different regulatory climate, there is an important difference of culture. "The bank CEOs saw themselves as custodians of historical institutions," he says. "I think of my job as one of passing on the institution to my successor in better shape than I got it."
Asked why Canada's bank bosses never harboured Fred Goodwin-style aspirations to take on the world, Clark laughs: "I think maybe because we never took ourselves that seriously: that's definitely a core Canadian characteristic. If you're sitting in London with a 150-year-old bank, you think you're the centre of the universe. We think of ourselves as a small country."	Asked why Canada's bank bosses never harboured Fred Goodwin-style aspirations to take on the world, Clark laughs: "I think maybe because we never took ourselves that seriously: that's definitely a core Canadian characteristic. If you're sitting in London with a 150-year-old bank, you think you're the centre of the universe. We think of ourselves as a small country."
Other observers say the relatively cosy nature of the Canadian banks, protected from the full blast of foreign competition by tight regulation, has also helped. John Crow, the British-born governor of the Bank of Canada from 1987 to 1994, says: "Our banks have built up valuable domestic franchises. And the economics of franchises are such that they encourage you to be somewhat conservative in taking on risk. Whatever you think of that as regards competition, it adds a measure of stability to the financial system."	Other observers say the relatively cosy nature of the Canadian banks, protected from the full blast of foreign competition by tight regulation, has also helped. John Crow, the British-born governor of the Bank of Canada from 1987 to 1994, says: "Our banks have built up valuable domestic franchises. And the economics of franchises are such that they encourage you to be somewhat conservative in taking on risk. Whatever you think of that as regards competition, it adds a measure of stability to the financial system."
During the credit crunch, the banks were supported by the Bank of Canada with extra liquidity – in effect, cut-price loans – but none was fragile enough to be taken over by the taxpayer.	During the credit crunch, the banks were supported by the Bank of Canada with extra liquidity – in effect, cut-price loans – but none was fragile enough to be taken over by the taxpayer.
As Carney leaves for London, however, there is a niggling feeling among some in Canada that cracks are starting to appear in the country's outwardly successful economic model.	As Carney leaves for London, however, there is a niggling feeling among some in Canada that cracks are starting to appear in the country's outwardly successful economic model.
A debate is raging about whether the country's reserves of black gold – and even its reputation as a "safe haven" amid the chaos of global markets – could become a curse, instead of a blessing.	A debate is raging about whether the country's reserves of black gold – and even its reputation as a "safe haven" amid the chaos of global markets – could become a curse, instead of a blessing.
Since hitting a low of 62 cents against the US dollar in 2002, the Canadian dollar – the loonie, as it is known – has appreciated steadily. It hit parity with the dollar in 2007, and has hovered there ever since. There are growing fears that this may be evidence of a phenomenon economists call "Dutch disease" – where abundant natural resources drive up a country's exchange rate so far that other industries are crowded out.	Since hitting a low of 62 cents against the US dollar in 2002, the Canadian dollar – the loonie, as it is known – has appreciated steadily. It hit parity with the dollar in 2007, and has hovered there ever since. There are growing fears that this may be evidence of a phenomenon economists call "Dutch disease" – where abundant natural resources drive up a country's exchange rate so far that other industries are crowded out.
It's political anathema here, especially out west, to argue that oil and gas reserves are anything but a boon – or that the strength of the loonie is a problem.	It's political anathema here, especially out west, to argue that oil and gas reserves are anything but a boon – or that the strength of the loonie is a problem.
"I look at it as, 'what are we producing best?'" says Lurie with a shrug. "To me, it's very clear that our economic advantage is in resources. If manufacturing's not doing well, maybe we shouldn't be doing it."	"I look at it as, 'what are we producing best?'" says Lurie with a shrug. "To me, it's very clear that our economic advantage is in resources. If manufacturing's not doing well, maybe we shouldn't be doing it."
Greg Stringham, of the Canadian Association of Petrol Producers, is keen to stress that reserves are widely spread across the country – with oil extraction taking place offshore in Quebec, to the east, and in British Columbia, to the west, as well as in Alberta. He points out that the complex technology required to extract oil from tar sands, or shale gas deposits from deep in the rocks, requires an array of parts – "tanks, modules pumps … " that are manufactured far and wide. "That has really helped people to understand a bit more how important this was to the economy."	Greg Stringham, of the Canadian Association of Petrol Producers, is keen to stress that reserves are widely spread across the country – with oil extraction taking place offshore in Quebec, to the east, and in British Columbia, to the west, as well as in Alberta. He points out that the complex technology required to extract oil from tar sands, or shale gas deposits from deep in the rocks, requires an array of parts – "tanks, modules pumps … " that are manufactured far and wide. "That has really helped people to understand a bit more how important this was to the economy."
"Canadian industry has adjusted quite well to our currency," says Martin, the former finance minister. "Of course, many people say it's because we're a commodity producer. I think the other reason for the strength of our currency is the strength of our balance sheet. We dealt with that in the mid-1990s and we're still reaping the benefits of that."	"Canadian industry has adjusted quite well to our currency," says Martin, the former finance minister. "Of course, many people say it's because we're a commodity producer. I think the other reason for the strength of our currency is the strength of our balance sheet. We dealt with that in the mid-1990s and we're still reaping the benefits of that."
Whatever the cause, there is little doubt that Canadian manufacturing was suffering, even before the downturn. "The economy's become really unbalanced," says Bruce Campbell, of thinktank the Canadian Centre for Policy Alternatives. (CCPA) "We have seen this precipitous decline in manufacturing output in relation to the rest of the economy. What the lasting damage is, we don't know."	Whatever the cause, there is little doubt that Canadian manufacturing was suffering, even before the downturn. "The economy's become really unbalanced," says Bruce Campbell, of thinktank the Canadian Centre for Policy Alternatives. (CCPA) "We have seen this precipitous decline in manufacturing output in relation to the rest of the economy. What the lasting damage is, we don't know."
Almost 300,000 manufacturing jobs were lost between 2000 and 2011; although when Carney touched on the issue in a speech in Windsor, Ontario, in Canada's manufacturing heartland, he pointed out that a decline in industrial jobs has taken place across many industrialised economies over the past decade. "Workers need to build skills and be prepared to shift jobs and even careers, if necessary," he warned. Unemployment in Ontario is 7.3%, against 4.8% in Alberta.	Almost 300,000 manufacturing jobs were lost between 2000 and 2011; although when Carney touched on the issue in a speech in Windsor, Ontario, in Canada's manufacturing heartland, he pointed out that a decline in industrial jobs has taken place across many industrialised economies over the past decade. "Workers need to build skills and be prepared to shift jobs and even careers, if necessary," he warned. Unemployment in Ontario is 7.3%, against 4.8% in Alberta.
The oil glut poses serious social questions, too. Like the financial services boom in the UK in the early noughties, Canada's resource extraction flatters the GDP figures, but despite what Bob Robinson of Westcor says, the benefits are not shared widely, even in the heart of oil country.	The oil glut poses serious social questions, too. Like the financial services boom in the UK in the early noughties, Canada's resource extraction flatters the GDP figures, but despite what Bob Robinson of Westcor says, the benefits are not shared widely, even in the heart of oil country.
Calgary is by far the country's most unequal city, and is becoming more so. It has its swish restaurants and casinos – but also food banks and homeless shelters. Recent research by the CCPA showed that the top 1% of Calgarians, as they are known, have seen on average a $570,000 increase in pay since 1982, adjusted for inflation; while the bottom 90% saw an increase of just $2,000.	Calgary is by far the country's most unequal city, and is becoming more so. It has its swish restaurants and casinos – but also food banks and homeless shelters. Recent research by the CCPA showed that the top 1% of Calgarians, as they are known, have seen on average a $570,000 increase in pay since 1982, adjusted for inflation; while the bottom 90% saw an increase of just $2,000.
In a characteristically loose interpretation of his remit, Carney recently highlighted widening income inequality, underlining the fact that the share of income taken home by the top 1% of earners in Canada was the third-highest in the OECD – after the US and UK. His wife, Diana, who works for a centrist thinktank, Canada 2020, recently gave testimony on the issue in the Canadian parliament. "One of the things about Carney which I think bodes well is that he has displayed a sensitivity to this issue," says Campbell.	In a characteristically loose interpretation of his remit, Carney recently highlighted widening income inequality, underlining the fact that the share of income taken home by the top 1% of earners in Canada was the third-highest in the OECD – after the US and UK. His wife, Diana, who works for a centrist thinktank, Canada 2020, recently gave testimony on the issue in the Canadian parliament. "One of the things about Carney which I think bodes well is that he has displayed a sensitivity to this issue," says Campbell.
Perhaps the clearest sign of potential stress in the Canadian economy, and another issue repeatedly highlighted by Carney, however, is sky-high household debt: a side effect of what the International Monetary Fund has called an "exuberant" housing market.	Perhaps the clearest sign of potential stress in the Canadian economy, and another issue repeatedly highlighted by Carney, however, is sky-high household debt: a side effect of what the International Monetary Fund has called an "exuberant" housing market.
It is hard to walk down a street in Toronto without seeing vast signs advertising the scores of new "condo" developments in the city; while in Vancouver, the cosmopolitan melting pot in Canada's far west and its frothiest housing market, headlines last week highlighted the fact that a penthouse in a swanky new development had changed hands for a record $25m — a classic bubble tale.	It is hard to walk down a street in Toronto without seeing vast signs advertising the scores of new "condo" developments in the city; while in Vancouver, the cosmopolitan melting pot in Canada's far west and its frothiest housing market, headlines last week highlighted the fact that a penthouse in a swanky new development had changed hands for a record $25m — a classic bubble tale.
In its most recent report on the Canadian economy, the IMF suggested that average homes are on average 10% to 15% overvalued. As house prices have risen and interest rates have been slashed to help the economy through the slump, many homeowners have responded by borrowing more. Household debt now stands at 162% of GDP, which is similar to levels in the US and UK before the downturn.	In its most recent report on the Canadian economy, the IMF suggested that average homes are on average 10% to 15% overvalued. As house prices have risen and interest rates have been slashed to help the economy through the slump, many homeowners have responded by borrowing more. Household debt now stands at 162% of GDP, which is similar to levels in the US and UK before the downturn.
The finance ministry, with advice from Carney, has taken steps to slow the pace of credit growth; crucially, by tightening mortgage lending requirements. Growth rates of borrowing have come down but, at best, the heavy burden of debt is likely to be a drag on consumer spending for some time to come. At worst, it could leave Canadian households exposed if there is a sharp rise in interest rates, or a jump in unemployment.	The finance ministry, with advice from Carney, has taken steps to slow the pace of credit growth; crucially, by tightening mortgage lending requirements. Growth rates of borrowing have come down but, at best, the heavy burden of debt is likely to be a drag on consumer spending for some time to come. At worst, it could leave Canadian households exposed if there is a sharp rise in interest rates, or a jump in unemployment.
"It's a gauge of vulnerability," says Craig Wright, chief economist at Royal Bank of Canada. "It's not just a housing bubble potentially, but it's a personal debt bubble, which is quite closely related."	"It's a gauge of vulnerability," says Craig Wright, chief economist at Royal Bank of Canada. "It's not just a housing bubble potentially, but it's a personal debt bubble, which is quite closely related."