Statistics Canada released the third-quarter GDP numbers yesterday, and on the surface they seem pretty upbeat, considering all the doom and gloom lately. Headline real GDP grew at an annualized 3.5 per cent rate. I predicted a few weeks back that there was no chance that the 3Q number would be negative (thus sparing us a "technical recession," on the tails of the GDP contraction in the second quarter). But I certainly didn't expect a number that strong.
Dig a little deeper, however, and there are some very odd features to the GDP report that give cause for future concern. For several reasons, the numbers attest to the unprecedentedly lopsided nature of the current "recovery." If it weren't for our booming exports of petroleum, we likely would be in a technical recession. Coinciding with the opening of the Durban conference on climate change (and the release of an awesome CCPA report by our own Marc Lee on how Canada's energy exports are contributing to so much of the global problem), these GDP numbers affirm that Canada's entire economic trajectory is being increasingly dominated by fossil fuel exports.
Here are some of the points of concern:
- Exports account for 134 per cent of the expansion in GDP. If it weren't for the sharp rise in exports in the third quarter, real GDP would have declined.
- Energy exports accounted for 60 per cent of that growth in exports in the third quarter.
- The energy industry alone directly accounted for 26 per cent of the increase in real GDP at factor cost by industry between June and September. Considering that this sector employs about 1 per cent of working Canadians, that is a stunning dependence on one sector.
- Consumers and governments have pretty much hit the wall, as far as new spending. Consumer spending and government consumption barely grew at all in real terms. Government investment spending (all that infrastructure money) is now falling at a 5 per cent annual rate, putting a big hole in the demand side of the economy.
- Another weak spot was business investment spending, which also declined at a 4 per cent annual rate in the third quarter -- even with the enormous spending on tar sands projects (not to mention the "stimulative" impact of Harper's corporate tax cuts).
- In fact, business non-residential capital spending is the only sector of Canada's domestic spending that is still well below its level in the third quarter of 2008 (as the recession hit). All other domestic spending categories (consumer spending, government investment and consumption, and residential investment) long ago regained and surpassed their pre-recession peaks. Government investment spending is 32 per cent higher than that peak (although it is now being clawed back by austerity-minded politicians).
Source: Author's calculations from Statistics Canada CANSIM Table 380-0002. Chained $2002. Business investment is non-residential.
- Business is thus free-riding on the economic effort of other participants in our economy.
- Exports, despite the strong third quarter, are the other spending category still languishing below pre-recession peaks.
- Corporate profits rose 4 per cent in the quarter, yet business capital spending fell. That means the hoard of idle cash upon which Canadian corporations are sitting ($520 billion as of June 2011, most recent data, counting currency and short-term assets) certainly increased again. (We won't know exactly how much until StatsCan releases the 3Q National Balance Sheet data in a couple of weeks.)
Let's sum up what's happening, therefore. The domestic economy is stagnant at best, and some sectors (notably government investment are contracting). Both the quantity and the value of exported energy is expanding rapidly. Yet despite the expansion of energy projects, overall business investment is declining. Talk about putting all our eggs in one very dirty basket.
This article was first posted on The Progressive Economics Forum.