There was a fleeting moment, near the start of Bill Morneau’s speech in Montreal today, when the federal finance minister sounded like he was about to let us all in on some top-level stuff about the state of the world economy, or at least tell a fun insider anecdote.
Morneau set it up by saying he travelled a few weeks ago to the summit of the G20 countries in Turkey, where he “found himself in a room” with U.S President Barack Obama, Chinese President Xi Jinping, Indian Prime Minister Narendra Modi, German Chancellor Angela Merkel and Canada’s own Justin Trudeau.
That’s an impressive conglomeration of geopolitical clout. So, go on, minister, you’ve got our attention. “I witnessed a clear consensus as the outcome from our discussion,” he said. Really? A consensus that included China and America, Germany and India? What was it? “It is a challenging time for the global economy.”
That’s it? We got more than that at a breakfast meeting at Ottawa City Hall last week, where I found myself in a room with—well, offhand I can only remember Bank of Canada governor Stephen Poloz being there, but I’m sure there were other notable personages.
Anyhow, that was where Poloz made news by saying there’s not much to be done about the damage the Canadian economy has sustained as a result of low oil and commodity prices, except wait for economic growth to shift from resources to other sectors.
“There is no simple policy response in this situation,” Poloz said with a stoicism that comes more naturally to appointed central bank governors than to elected ministers of finance. “The forces that have been set in motion simply must work themselves out.”
Morneau is on a cross-Canada tour this week, billed as consultations as he prepares the federal budget he’ll table next month or perhaps sometime in March. No doubt he’s gathering some ideas. But in the speeches he delivered in Halifax yesterday and today in Montreal, his mission seemed mainly to convey a sense of realism, leaning against the expectations generated by the Liberals’ winning fall election campaign and the upbeat tone Trudeau has maintained since coming into office.
“No one will be surprised to hear me say that the Canadian economy is going through a difficult period,” Morneau said. No one, indeed. Not on a day when the price of oil dipped below US$30 a barrel and the Canadian dollar lower than 70 cents U.S.. “But in the face of this real challenge,” he went on, “there is a real opportunity to put in place the conditions to create long-term growth.”
Note that he specified “long-term.” Arguably the biggest question facing Morneau is how much his first budget should be built, in the spirit of Poloz’s remarks, on the assumption that there isn’t a lot to be done about what’s happening right now, or whether it should also include some serious short-term stimulus.
Not surprisingly, mainstream economists tend to advise the patient approach. Even when it comes to infrastructure spending—often touted as the best way to try to spur some immediate growth—most experts urge picking the most useful projects rather than merely those that can be started quickest.
I asked McGill University economics professor Christopher Ragan, who happened to be in Calgary today for a conference on the dismal state of the oil patch, and he said infrastructure spending is wise but rushing it is foolish. “It’s almost impossible, I would say, to spend large amounts of money both quickly and smartly,” Ragan said, noting that this was one of the things he learned as a visiting economist in the federal finance department in 2009-10.
Morneau wasn’t emphasizing stimulus today. Instead, he listed some substantial, long-term aims, like making the resource sector more environmentally sustainable, supporting innovation by growing companies, and working with provinces on addressing skills shortages and enhancing the Canada Pension Plan.
All of which sound worthy, although rather detached from the unsettling economic news of the day, and likely many of the days just ahead, too. Maintaining this tone until budget day will take discipline. Perhaps the Liberals are relying on their middle-income tax cut, plus the coming new Canada Child Benefit, both of which Morneau touted in Montreal, to sweeten the budget message sufficiently.
Still, a modest tax cut for some and a new benefit only for parents aren’t going to make the economy feel buoyant if it really isn’t. “We can’t influence the world price of oil and we can only have limited influence on growth of GDP, but we can cut taxes for middle-income Canadians and make them feel better there,” Ragan said. “I don’t know what else [Morneau] can say.”
It’s like Obama, Xi, Modi, Merkel and Trudeau agreed—challenging.