Can Canada hold off a recession?

Professors Maria Adshade, Lars Osberg and Talan Iscan debated whether or not Canada is heading toward a recession. (Danny Abriel Photo)

It’s hard to escape the cries of uncertainty bellowing from the business section of the newspaper. From Wall Street to Bay Street, financial watchers everywhere are deeply concerned about the state of the American economy.

Students and faculty from Dalhousie’s Department of Economics gathered for an open forum last Friday to discuss and debate the key economic questions on everyone’s mind: is the U.S. economy in a recession, and, if so, what effect will that have on the Canadian economy?

The panel’s consensus on the first question was a resounding yes. “Rising unemployment, the loss of income… you don’t have to be a rocket scientist to figure this out,” explained Professor Talan Iscan. “You’d have to be some sort of a ‘recession denier’ to think otherwise.”

The downturn in the American economy – driven by the effects of a bursting housing bubble – threatens to slow global economic growth that has flourished at rates unseen since the 1970s. Dr. Iscan spent much of his presentation looking at these global trends before exploring the downturn in the housing market. “There’s a global price bubble in the housing market,” he explained. “The question is: how far will it drop?”

That answer may depend on how Americans respond to a stimulus package approved by Congress and President Bush early last week. Lars Osberg, chair of the Department of Economics, worries that consumer confidence – key to an economic rebound – may be a difficult problem to tackle.

“There’s commentary in the States arguing that even $150 billion in ‘money-in-pocket’ type fiscal stimulus is not likely to be enough,” he told the audience. “We’re depending a lot on consumer confidence being positively affected, but how much can that effort to rebuilt consumer and investor confidence offset some of these fundamentals that people see in their own portfolio?”

If the American economy is headed towards hard times, does that mean Canadians should also feel less confident about their own economic situation? Not necessarily, as Marina Adshade explained. With strong employment numbers last year, an expansion in household credit (unlike in the States) and positive effects from the GST cuts of the past two years, she argued that there’s a solid groundwork for the Canadian economy to maintain a reasonable degree of strength.

Of particular note is the high Canadian dollar, which Dr. Adshade said is keeping inflation in check as Canadians demand price parity with the American market. This allows the Bank of Canada more flexibility to enact policies to increase demand – such as lowering interest rates – without increasing inflation at the same time.

The bottom line: “There’s nothing in the current information that says that Canada is currently in a recession,” said Dr. Adshade, assistant professor in the Department of Economics.

There are still areas of concern, however. One is that net exports to the U.S. are down slightly, a number that could take a significant hit if the American stimulus package fails to increase American consumer spending. The biggest question, though, is how Canadians react to the news south of the border.

“It concerns me because when you listen to the radio and read the newspaper, there’s not a lot in there this week and last week to build consumer confidence,” said Dr. Adshade. “So if we see Canadian households start to scale back on spending, there’s a possibility we won’t be in as strong a position.”