The Situation
In the October 2015 election, the Liberals, headed by Justin Trudeau, the son of the country’s best known prime minister, Pierre Trudeau, won a comfortable majority of seats in Parliament. The election results gave the Liberals the biggest gain in seats ever recorded, as it became the first party to ever jump from third place in Parliament to first. Justin Trudeau, 43 at the time of the vote, drew a late surge of support with his optimism and his plans for reviving the economy, which contracted during the first two quarters of 2015 and is predicted to grow by just 1.1 percent for the year. The loonie, as the Canadian dollar is called, reached an 11-year low against the U.S. dollar in September, while household debt continued to march to record highs, raising concerns that a U.S.-style housing crash is around the corner. Trudeau pledged to increase infrastructure spending by running C$25 billion ($19 billion) in deficits over the next three years. After the election the loonie continued to fall and the economic forecasts weakened further. Trudeau faced pressure to speed up his infrastructure spending plans and run bigger deficits, even as other parts of his agenda seemed imperiled.
The Background
From its beginnings, Canada has benefited from a trove of natural resources; its economic self-image is often summed up by the Biblical phrase “hewers of wood and drawers of water.” But in recent decades drilling has been more important. Canada’s oil sands represent the third-largest oil reserves in the world, and the country has become a key producer of gold, copper, potash and uranium. The surge in oil revenue coincided with the rise of the Conservative Party, which has its base in mineral-rich Alberta. Between Trudeau’s predecessor, Stephen Harper, who had won the previous three elections, and Brian Mulroney, Conservative prime ministers had governed for most of the last generation. Harper often spoken of making Canada “an energy superpower” with output from the tar sands projected to rise by 50 percent over the next decade. But economic power may be shifting back to the eastern provinces of Ontario and Quebec as crude prices stay low and manufacturing rebounds with the weak currency. Car exports topped oil in July for the first time in eight years.
The Argument
By the time of the election, it seemed clear that one potent force in the minds of voters was Harper fatigue. The NDP fared well early in the campaign — the country’s longest since 1872 — when it seemed the most likely agent of change. But Trudeau’s infrastructure plan met with wide approval in pre-election surveys. His government, however, is facing a bleak economic outlook that may be more than highway spending can turn around. Beyond the current slowdown, Canadians are asking a broader question: If oil is no longer booming, where will growth come from? At the Davos summit in January, Trudeau talked up Canada’s potential as a high-tech hub. But while its nascent technology industry shows promise it’s unlikely to replace all the jobs lost from the oil patch, at least anytime soon. Across the political spectrum, Canadians remain attached to the European-style social benefits they have come to cherish — from free health care and education to subsidized daycare. One question is how they pay for them if oil and other commodities don’t rebound soon.
The Reference Shelf
- A Bloomberg profile of Justin Trudeau by Josh Wingrove.
- A report by the Bank of Canada on the impact of the swoon in oil prices.
- Information on the rise of household debt from Statistics Canada.
- Maclean’s published a collection of charts analyzing the Canadian economy.
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First Published Sept. 28, 2015
To contact the writer of this QuickTake:
David Scanlan in Toronto at dscanlan@bloomberg.net
To contact the editor responsible for this QuickTake:
John O'Neil at joneil18@bloomberg.net