OTTAWA – The Canadian economic recovery is showing signs of stalling, even as Ottawa prepares for an austerity budget that further slashes public sector contributions to growth.
Statistics Canada reported Tuesday that real gross domestic product actually shrank by 0.1 per cent in November, following zero growth in October.
Opposition critics called on the federal government to hike spending to support growth and jobs, rather than seek further savings in an effort to balance the budget.
“With 72,000 jobs lost in two months (October, November), Canada needs a jobs budget, not a cuts budget,” said Liberal finance critic Scott Brison.
The NDP’s Peter Julian warned the government’s announced intentions “are a serious, serious mistake,” noting that the GDP setback is only the latest of a “litany” of indicators showing the economy braking — from jobs creation, to the trade and current account deficit to the fall in real wages.
In the House, question period was dominated by criticism of another government cost-saving initiative, reforms to Old Age Security that would see Ottawa pay less than currently projected on income support to seniors in future years.
Prime Minister Harper defended his plans, saying OAS needs to be put on a sustainable track for the future, adding that seniors already receiving benefits would not be affected.
November’s surprising weakness to output — a 0.2 per cent gain had been expected — brings economic growth over the last three recorded months to a snail-paced 0.7 per cent.
Analysts noted that most of November’s weakness was due to one sector — oil and gas extraction, in part due to temporary maintenance shutdowns — but also pointed out there was not enough strength elsewhere in the economy to fill the gap.
“While we can brush it off as due to weakness in one sector, the fact is nothing else stepped up to the plate to offset that weakness, and that just shows how sluggish the underlying economy is,” said Douglas Porter, deputy chief economist with the Bank of Montreal.
Several private sector forecasters, including BMO, quickly downgraded their outlooks for the fourth quarter of 2011 by about half a point, saying that the Bank of Canada’s projection of two per cent expansion now seems out of reach.
Porter also wondered whether the federal government, which is expected to table its next budget in just over a month, should be contemplating major cutbacks.
The federal government is committed to cut at least $4 billion in the next three years — in addition to other spending restraint — and recent statements from ministers suggest the slashing could reach $8 billion.
Based on the lower figure, the Centre for Policy Alternatives estimates job losses throughout the country would top 60,000 over the next three years.
Even before these fresh measures, Ottawa and the provinces were winding down the stimulus spending brought in to offset a global credit crisis that sparked the 2008-09 recession. With less government spending, the public sector is likely to represent a net drag to growth in 2012 as opposed to a boost in 2011.
“I can sympathize with unwinding the stimulus, I just wonder if the appetite for restraint should be as heavy as it seems to be,” said Porter. “We need to make sure that growth stays on track before we start carving heavily on spending.”
In the most recent economic review from the Bank of Canada, the government sector was forecast to cost the economy 0.1 per cent in output this year, compared to contributing 0.3 per cent in 2011 and 1.2 per cent in 2010.
Union economist Erin Weir of the United Steelworkers said a reduction in public investments “could push Canada’s fragile economy back into recession.”
The last three months of 2011 has also seen about 55,000 jobs vanish, although December was a net positive and analysts expect Statistics Canada will confirm a modest employment pickup in January as well when it reports Friday.
Most private sector economists believe it would take an external shock such as a full-blown European financial crisis to tip Canada into a recession. The likely scenario is slow growth below two per cent, they say, a view shared by the central bank and the International Monetary Fund.
The last few months of data shows there are few strong engines of growth in Canada’s economy.
November’s big loser was oil and gas extraction, down 2.5 per cent. But wholesale trade, finance and insurance, and construction also saw outright shrinkage, part of the overall 0.6 per cent retreat in the goods-producing sector.
Some comfort can be taken that manufacturing rose 0.6 per cent, led by the auto sector, said CIBC economist Emanuella Enenajor. Other gainers were retail trade, accommodation and food services, professional services and real estate agents and brokers services.