Comparing Canada and the US

I found this graphic in the Bank of Montreal's financial digest, Focus, to be interesting. It shows how much better Canada has fared during this economic collapse compared to the US:


This looks good, but there are some ugly details gnawing away at Canada which will cost this country in the long run:

• US productivity is growing at 6.6% annually. But Canada productivity is lagging. For 2008 it fell by 0.5%. A government publication that reviews the dismal story of how Canadian productivity lags the US can be found here. With dismal data showing this:
  
  


• The current account balance will fall to -$40 billion this year. In the last few years we had been running a surplus of +$15 billion/year. This is "the American disease" and it has hit Canada with a vengance this year because of the shrinkage of manufacturing in central Canada and the drop in resource prices.


• The loonie soared and has now crashed. Late in 2007 it hit U$1.10 per C$1 as resource prices spiked. That lowered costs for Canadians but it trashed a lot of Canadian industry which suddenly found itself as too high cost producers to be competitive. The consequences reverberated through 2008 and with the global crash of late 2008 everything has only gotten worse. The one-two whammy has sent manufacturing reeling.

So the initial graph showing relative Canadian strength may make Canadians smug, but there is a lot to worry about. This year the depth of downturn in Canada keeps surprising economists. We started the year patting ourselves on the back that our financial institutions came through relatively unscathed. But there is a sickness in the land and it has shown up as a worse downturn than expected and a delayed recovery, a weaker recovery.

The moral of the story: don't gloat. The US appears to be in worse shape than us. But I suspect they will spring back stronger than us because there is a lingering disease, an economic malaise in Canada, reflected in the terrible productivity numbers. You can't have a better lifestyle if you can't increase productivity. Productivity is the only thing that delivers more goods for less effort. Canadians need to do some soul searching for why our economy has this problem. We know we have a better financial system, we have a better education system, we have a better health care system. So why are we unable to show better productivity?

I'm not an economist. I have no answers. I'm simply expressing my unease.