It’s not so bad…

RYAN  By Guest Blogger Ryan Lewenza

Old, young, we all like to complain. We complain about the weather, our favourite hockey team that never seems to be able to get it done or our politicians who always seem inept, self-serving and short-sighted. It’s in our DNA and I get that. But no one likes constant complainers, especially those without the facts or sound reasoning behind their beefs. So this week I take a “glass half full” perspective, looking at some of the frequent complaints about Canada that I see in the comments section of this blog.

Complaint #1: Canadian deficits and rising government debt is going to trigger an economic crisis.

High government debt is a constant complaint among many of the blog dogs, and in some cases their concerns are justified. We live in a debt financed world where consumers spend money they don’t have and governments freely spend other people’s money. According to the McKinsey Global Institute, global debt has increased by US$57 tln since 2007 to a new record high of US$199 tln. When compared to GDP, global debt has increased from 246% in 2007 to 286% today.

While global debt is on the rise and is a concern, you have to look country by country to determine which ones are at most risk. Below is a chart of the largest nations in the world and top of the list are Japan, Italy, France and US with net government debt to GDP ratios of 127%, 110%, 87% and 80%, respectively.

In contrast, Canada has a net government debt to GDP ratio of just 38%, below that of even Germany, an economic powerhouse. (Note: this metric only considers net Federal government debt).

Now with the free spending T2 running the show in Ottawa and projected deficits of $29 bln this year, and $113 bln over the next five years, we’re going to be adding to our debt levels which requires close monitoring. However, given the size of our economy (roughly $2 tln in GDP), our current $680 bln in debt is well supported by the economy.

So Canada is in a much better fiscal positon than many believe, and why I’m not overly concerned about Canada’s current deficits and debt levels. Japan however, yikes…..

G7 Countries Net Government Debt to GDP Ratios

Source: IMF, Turner Investments

Complaint #2: Canada’s economy is poorly positioned for the 21st century

Some readers of this blog believe Canada’s best days are behind it citing things like an end to fossil fuels, changes in global trade and a lack of innovation in our country. I don’t agree with this view.

With the global push to renewables and the proliferation of electric cars, some believe the end of our fossil fuel economy is around the corner, and therefore Canada is screwed in the coming decades. I think this is very premature and see fossil fuels remaining a key energy source for some decades to come. According to an HSBC report, oil demand will grow by over 1 mln bls/day before peaking in 2040. And based on their analysis, the world will need to find 40 mln bls/day in output to keep up with demand from the emerging economies. Well, if that’s the case, then Canada is well positioned by having the third highest proven oil reserves in the world at 171 bln barrels.

World Proven Oil Reserves

Source: Gulf Business, Turner Investments

With respect to trade, while we’re likely to begin negotiations with our American friends in the coming months, I suspect it will be more of a tweaking of NAFTA than a major overhaul. First, the trade relationship between the US and Canada is the second largest trade relationship in the world at US$545 bln in goods in 2015. This equated to a trade deficit of US$11 bln in 2015 versus trade deficits of US$347 bln and US$63 bln with China and Mexico, respectively. If President Trump and the US are going to create a trade war, it’s unlikely going to be with us polite Canadians.

Finally on innovation, this is one area that I do have concerns about as we seem to be falling behind in innovation across important areas like science, technology, and health care. This can be seen in our lower levels of R&D expenditures relative to other countries and with the Conference Board of Canada ranking us 9th of 16 peer countries on innovation. However, T2 and gang seemed to be waking up to this reality with the Federal Liberals committing over a $1 bln this year on skills and innovation and more down the road.

Complaint #3: Canada’s overall quality of life is on the decline

Here the complaints are widespread from the lack of good jobs to our poor health care system and declining education system. Basically it’s the classic everything just sucks these days. Well, from an empirical perspective this is just not the case.

The OECD has constructed an index of different factors that evaluates the overall well-being across different countries. Canada ranks 5th overall of the 35 OECD countries, with high ratings in income (average household disposable income per capita is US$30,474 versus OECD average of US$29,016), in jobs (72% of people age 15-64 have a job versus OECD average of 66%), healthcare (89% of people in Canada reported to be in good health versus OECD average of 69%) and life expectancy (82 years versus OECD average 80).

The point of this is to show that Canada is a pretty amazing place with lots of things going right for it, and that we should step back and recognize many of these great attributes. And what better time to do this with us celebrating our 150th anniversary. O Canada!

Canada’s OECD Better Life Index Readings

Source: OECD, Turner Investments
Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.