Canadians think we’re in a recession, but economists don’t...so what's the reality
A surprising majority of Canadians — 70% of them — say the country is in the middle of a economic recession, even though economists will tell you Canada hasn’t been in one since 2009, and is nowhere close.
The results, from a new online survey sponsored by the Economic Club of Canada and conducted by Pollara Strategic Insights, highlight a growing disconnect between how financial professionals quantify and measure the health of the economy and how Canadians feel about their every day prospects.
Michael Marzolini, chairman of Pollara, called the results the most pessimistic in 16 years.
“Canadians are more self-centred. They believe themselves under siege,” he said at a breakfast presentation hosted by the Economic Club in Toronto that included top economists from Canada’s Big Five banks.
“Most Canadians have little knowledge of economics, but they are on the front lines of the economy. They can see, and feel, financial change, and they tend to act collectively,” he said. “Canadians, in aggregate, are remarkably canny about the economy.”
The survey of 2,878 Canadians found optimism towards the Canadian economy has dropped to 25%, compared with 54% in 2009. As well, 35% of Canadians expect employment to worsen this year, compared with only 25% a year ago.
Doug Porter, deputy chief economist with BMO Capital Markets, who was in attendance Thursday morning, said he was in some ways surprised by the stark negativity in the report while also acknowledging that Canadians have had to weather months of doom and gloom.
Even so, with unemployment levels far off historical highs, decent auto sales and a still-resilient housing market, the underlying indicators suggest that Canadians really should not be feeling so down about themselves.
“I think things were much worse three years ago. This situation doesn’t even compare,” he said. “By most definitions, we’re not even close to being in recession in Canada. It is somewhat baffling that Canadians are so dour. Maybe it reflects their personal situations.”
Ken Wong, a marketing and consumer behaviour professor with Queen’s University, said while economists focus on the macro, which has been fuelled by commodities at the expense of jobs-intensive manufacturing, everybody else focuses on the micro: their own jobs, broken-down pensions and battered investment portfolios.
“It’s all about the unit of analysis. What’s good for the economy has not been good for the consumer the past few years,” he said. “The recession didn’t affect everybody in the same way.”
Arguably the best-performing province at the moment is Saskatchewan, but with a small population compared with Ontario and Quebec, it is not surprising if their optimism is drowned out by the many more voices complaining in Canada’s hard-hit manufacturing centres, he said.
Part of the problem may also be that Canadians do not know the correct definition and usage of the word “recession” either: economists define a recession, generally, as at least two straight quarters of negative GDP growth. Even then, there is room for interpretation, Mr. Porter said.
“I think that’s more a rule of thumb than anything. A lot of it is in the eye of the beholder,” he said.
Certainly those watching Mr. Porter and other top economists Thursday present their forecasts for 2012 and beyond would get the sense that they were not exactly seeing sunshine and rainbows ahead for Canada, or anywhere else for that matter.
Craig Alexander, chief economist with TD Economics, warned that the many desperate fiscal decisions the United States has made over the past few years will truly come home to roost in 2013.
While the elimination of some tax cuts and other stimulus policies may drag the U.S. economy by as much as 1.5 percentage points in 2012, the impact of those automatic cuts could completely eliminate any economic growth the year after.
“If complete gridlock happens and nothing occurs in Washington, the fiscal drag in 2013 goes up to 2-2.5 percentage points. That’s the rate of growth we’re expecting for the U.S.,” he said. “Fiscal policy could derail the economic recovery.”
In Canada, expectations remain muted in 2012. Craig Wright, chief economist with RBC Economics, forecasts 2.5% growth in Canada, which he admits is on the high side.
“Usually a decade of excess is followed by a decade of stress and we’re in the midst of it right now,” he said.
“I wouldn’t necessarily tell people to cheer up, but maybe not buy into the pessimism,” Mr. Porter said. “Although, it is entirely possible that Canadians are seeing something that the broad numbers haven’t captured yet.”