Reasons for optimism in 2012
Federal Finance Minister Jim Flaherty. (STUART DRYDEN/QMI AGENCY)
I never really believed in economic forecasting. First of all, the forecasters tend to be wrong at least half of the time or they only commit to the vaguest predictions.
For instance, just a few weeks ago, I received an economic bulletin by a reputable firm stating that there was a 50% chance that there would be a recession in 2012 ... and a 50% chance that there wouldn't be one!
Now, if you want to believe that 2012 will be a reasonably good year in terms of economic growth, here are some arguments to support your thesis.
Most Canadian economists are predicting a modest GDP growth of between 1.5 and 2.5% for the Canadian economy. This is far from being a stellar performance, but given that Europe is already in recession again and that this recession should continue in the coming year, slow growth is better than nothing.
This prediction is based on some kind of "decoupling" of the European and North American economies, with the latter continuing to grow despite the uncertainty and economic difficulties that continue to plague the old continent.
Since the U.S. is by far our main trading partner, the main determinant of what happens here is the state of the American economy. Although the budget crisis in Washington has been making headlines for months, economists have been surprised by how growth has kept up in the U.S. consumers have become more confident lately. Surveys of economists' forecasts project growth of between 2 and 3% for our neighbours, unless the crisis in Europe worsens.
The American economy has produced at least 100,000 new jobs for five months in a row, the longest such streak since 2006. The number of people applying for unemployment benefits has also dropped to the lowest level since April 2008.
Another argument that also comes up in favour of a somewhat optimistic outlook is that companies in Canada have recorded strong earnings growth in the past year and sit on a lot of cash. This should help them support growth and prevent too many rationalization and job cuts.
More fundamentally, while the economy may very well continue to deteriorate in the short term, as the difficult process of readjustments to decades of excessive government spending continues to unfold, entrepreneurs and innovators will go on creating wealth, despite the roadblocks that politicians and bureaucrats put in front of them.
For all these reasons I tend to be optimistic about the future. I feel this way despite all the very real problems looming ahead in the short and midterm. But I am not making here an actual prediction about what's going to unfold in 2012, because if I could really predict the future I would be a much richer man than I am.
These are just a few observations made by a guy who is optimistic, by nature, and who believes the creative forces of individuals will ultimately overcome most obstacles. Canada is a great place to live and to prosper. We have a lot going for us, and we should never forget this whether or not 2012 ends up being a year of economic growth.
Michel Kelly-Gagnon is president of the Montreal Economic Institute (www.iedm.org).