Economy

Canada’s report card is expected to look better in 2010 than it did in 2008. In 2008, Canada was in 11th place with a low “B” grade. In 2010, Canada will move up to 5th spot and narrowly miss getting an “A” grade. Among the 17 comparator countries, Canada is forecast to make one of the most striking relative improvements.

Canada is expected to weather the global recession better than most of its peers. Canada’s relative ranking in 2010 is forecast to improve on five indicators:

• GDP growth
• unemployment rate
• employment growth
• inward FDI performance index
• outward FDI performance index

The radar diagram below is a snapshot of Canada’s economic performance in 2008 and 2010 relative to that of the best-performing peer country—the outer ring—for each of the eight Economy indicators. The chart has eight axes—one for each indicator—that radiate out from the centre. A score closer to the centre represents worse performance, while a score closer to the outer circle represents better performance.

Canada is forecast to move closer to the top-performing country (that is, it will move toward the outer ring) on three indicators: GDP growth, employment growth, and the unemployment rate. Canada is expected to remain a top performer on inflation, and its performance relative to the best-performing country on labour productivity, income per capita, and outward and inward FDI is projected to be about the same in 2010 as in 2008.

Canada did not move towards the top-performing country on inward and outward FDI, despite improving its relative ranking, because the top-performer—Belgium—surged ahead of the rest of the peer countries. While Canada’s inward and outward FDI performance improved relative to that of some of its peers, it did not improve relative to Belgium's.

Although Canada’s GDP growth rate was lower than the 17-country average in 2008, it is expected to be higher in 2009 and 2010. The 17 countries included in the report card had a combined GDP of $26.8 trillion in 2008—accounting for almost 50 per cent of world GDP. The 17-country GDP level is forecast to fall to $25.7 trillion in 2009 (a drop of 4.1 per cent). Canada’s GDP will also drop in 2009, but the drop will not be as severe as for the 17-country average. Canada’s pickup in 2010 will also be slightly higher than the average. The country's relatively stronger performance on GDP growth moves Canada from 12th place in 2008 to 6th place in 2010.

As noted in the Conference Board’s World Outlook Spring 2009, access to credit is a crucial factor in determining economic growth, and it has dried up in most economies. Yet, of all the developed world’s banking sectors, “Canada’s is in the best shape thanks to its conservative and relatively cautious approach.”¹

Use the pull-down menu to compare Canada’s GDP growth with that of any of its peers.

Canada is also forecast to perform better than the 17-country average on employment growth. While total employment in the 17 comparator countries is expected to fall by 2.3 per cent in 2009, Canada’s employment will fall by 1.9 per cent. Similarly, in 2010, Canada’s employment will fall by less than the average. Canada’s relative ranking will jump from 8th place in 2008 to 3rd place in 2010. Australia will be in 2nd place in 2010, with employment falling by just 0.3 per cent. The U.S. will be in 1st place in 2010—the only country with positive employment growth.

Use the pull-down menu to compare Canada’s employment growth with that of any of its peers.

Dramatic job losses in all comparator countries means that unemployment rates will rise in both 2009 and 2010, even in the U.S., where employment is forecast to grow slightly in 2010. Canada’s unemployment rate is expected to average 9.8 per cent in 2010, a rate lower than for eight of its peer countries, including Ireland (14.8 per cent) and Sweden (11.4 per cent), but quite a bit higher than for Norway (4.3 per cent), Switzerland (5.1 per cent), and Japan (5.7 per cent). The U.S. unemployment rate—which was lower than that of Canada in 2008—is expected to jump to 9.3 per cent in 2009 and further to 10.1 in 2010.  

Use the pull-down menu to compare Canada’s unemployment rate with that of any of its peers.

Belgium: Belgium’s improvement will be due entirely to its expected relative strength on inward and outward foreign direct investment. Belgium attracts much more FDI than the size of its economy would warrant. While other countries are facing dramatic cuts in inward FDI flows, Belgium has managed to retain a steady flow of investment. Belgium has a central location in Europe, access to ports, high productivity, and an investment-friendly business environment. It also hosts both the European Union and the North Atlantic Treaty Organization.

Canada: The global recession is taking its toll on the country. Canada’s economic growth and standard of living (as defined by income per capita) are forecast to fall in 2009, and unemployment will rise in 2009 and 2010. Yet Canada will move up six places in the Economy ranking in 2010 because other countries are projected to be harder hit by the economic crisis.

United States: The U.S. will move up five spots—from 8th position in 2008 to 3rd position in 2010. The massive fiscal stimulus by the Federal Reserve and Treasury will lead to a rebound in the U.S. economy in 2010. The U.S. is the only comparator country that is not forecast to experience additional employment declines in 2010. It is also expected to have the second-highest GDP growth rate (after Australia) in 2010. As noted in the Conference Board’s summer 2009 U.S. economic forecast, “Recent indicators suggest that the severe recession that has gripped the U.S. economy since late 2007 is slowly winding down.”² In particular, housing markets appear to have stabilized in all major regions—existing home sales increased by 3.6 per cent in June, the third consecutive month of increases—although prices are still flat or falling.

Netherlands: The economic crisis did not affect the Netherlands as early as in some other countries. This delay means that the Dutch economy will look much worse in 2010 than in 2008. While other countries will be begin to rebound from the recession in 2010, the Netherlands’ performance on seven of the eight economic indicators is expected to be worse in 2010.

Switzerland: Despite Switzerland’s expected fall from 2nd spot in 2008 to 8th spot in 2010, the country will remain relatively strong. Compared with the 17-country average, Swiss income per capita will be higher, the unemployment rate will be lower, and employment growth will be higher. Employment growth, however, will be a mixed blessing. While welcome as a sign of economic recovery, it will not be accompanied by a concomitant increase in Swiss economic output, thereby resulting in a decline in labour productivity.³ Switzerland is expected to record the lowest productivity growth among the comparator countries in 2010. This poor performance, along with lower inward and outward FDI, will drag down Switzerland’s 2010 report card.

United Kingdom: The financial crisis has had a severe effect on credit markets and housing prices in the U.K., leading to a contraction in consumer spending and business investment. The impact of falling house prices on consumption has been particularly acute in the U.K., where the ratio of housing wealth to disposable income has been relatively high—400 per cent, compared with about 200 per cent in the U.S. and 300 per cent in Canada.⁴ The U.K.’s employment and GDP growth rates are forecast to be lower than the 17-country average in 2010, its unemployment rate higher, and its outward FDI performance worse. 

When explaining the report cards for economic performance in 2008, we noted that Ireland and Finland had experienced the most significant downgrades in their rankings. Ireland fell from the top of the class in 2007 to last place in 2008, and Finland fell from 6th spot to 15th.

Ireland is reeling from the global economic crisis and a meltdown in its domestic property market and construction sector. A recent Conference Board commentary on Ireland notes that “the luck of the Irish has run out.” The Irish economy contracted by 2.7 per cent in 2008, labour productivity and employment fell, and foreign direct investment—the main stimulus for Ireland’s economic miracle of the past decade—evaporated. Ireland became the first EU country to fall into recession in 2008.

Can Ireland recover? Yes, but not by 2010. It is forecast to remain in last place on overall economic performance. Ireland’s income per capita, which improved from 17th place in 1996 to 3rd place a decade later, is expected to fall to 7th place in 2010. Once the U.S. and global economies begin to expand, Ireland should be able to stop its slide. Many of the factors that originally stimulated the Irish economy in the 1990s are still evident: an investment-friendly business environment; a well-educated, relatively young, and English-speaking workforce; and guaranteed access to EU markets. But Ireland will still need to make significant changes to dig itself out:

“Significant domestic reform is also needed. The Irish banking system will have to deal with the huge stock of non-performing mortgages, requiring significant additional government support. The Irish government’s budget needs to be brought under control through spending cuts and increased taxation, and domestic prices for labour and for property are going to have to fall much further before the country restores its international competitiveness. The Celtic tiger can crawl out of the pit, but some tough and unpopular policy decisions will be needed too.” A Celtic Tiger Stumbles and Falls

Finland’s slide in late 2008 was even sharper and steeper than during its early 1990s recession. Because Finland depends heavily on exports for its economic strength, the drop-off in export markets at the end of 2008—particularly Russian exports due to a decline in Russian oil and gas revenues—caused Finland’s industrial output to decline 16 per cent between December 2007 and December 2008. Destocking, reduced household consumption, and lower dwelling investment also contributed to the decline in GDP.

Can Finland recover? Sort of. Finland is expected to move up slightly in the ranking, from 15th spot in 2008 to 13th spot in 2010. But problems will still plague the Finnish economy: employment will continue to contract, unemployment will continue to rise, and inward FDI flows will remain very low. Economic growth is forecast to fall sharply in 2009 and, as world trade picks up, recover slowly in 2010. Finland’s economic stimulus package was modest by U.S. standards, but Finland was in a stronger fiscal position going into the recession.

The OECD suggests that the Finnish government could help the economy in two ways.⁵ First, since its fiscal balance is relatively strong, it could use the room for further fiscal stimulus to help support domestic demand. Second, to sustain competitiveness, labour market flexibility needs to be improved so that wage levels more closely align with productivity.

Norway’s economy has been more resilient than most to the impact of the world recession and so the country is forecast to remain in 1st place in the Economy ranking in both 2009 and 2010. Norway’s economy is partly protected from current economic conditions by its large petroleum sector. The Norwegian government is also using its considerable oil wealth to boost the economy, adopting an expansionary fiscal policy stance.

The 2009 and 2010 forecasts for six of the Economy indicators were obtained from the OECD Economic Outlook No. 85 (June 2009).⁶ The forecasts for the remaining two indicators—outward and inward FDI—were produced by the Economist Intelligence Unit.

The methodology used to assign grades to the forecast data is the same as that described for the regular report cards in the Methodology section, with one important exception.

Countries are usually assigned a report card–style grade of A–B–C–D for each indicator by calculating the difference between the top and bottom performers and dividing this figure by 4. A country would normally receive a grade of “A” on a given indicator if its score is in the top quartile, a “B” if its score is in the second quartile, a “C” if its score is in the third quartile, and a “D” if its score is in the bottom quartile.

The global recession, however, has caused a situation where GDP growth in 2009, for example, is negative for all countries. Using the regular methodology would result in countries with negative growth being assigned an “A” grade. This did not make sense to us. In those cases, we instead constrained the formula so that countries with negative growth rates receive either a “C” or “D” grade.

¹ Kip Beckman, World Outlook Spring 2009: Global Economic Trends and Prospects (Ottawa: The Conference Board of Canada, 2009), p. 1.
² Kip Beckman, U.S. Outlook Summer 2009: Economic Forecast (Ottawa: The Conference Board of Canada, 2009), p. 1.
³ Labour productivity is defined as output per hour worked. Output is represented by gross domestic product. Hours worked is calculated by hours worked per employee multiplied by total employment.
⁴ OECD, OECD Economic Outlook No. 85 (Paris: Author, June 2009), pp. 18–19.
⁵ OECD, OECD Economic Outlook: Finland (Paris: Author, June 2009).
⁶ OECD, OECD Economic Outlook No. 85 (Paris: Author, June 2009).

See discussions on other indicators
Income per capita	Unemployment Rate
GDP Growth	Employment Growth
Labour Productivity Growth	Inward FDI Performance Index
Inflation	Outward FDI Performance Index