Trudeau Has Canada's Economy Humming
(Bloomberg Opinion) -- Canadians may find the choices in their Oct. 21 national election disheartening. Though there are six candidates, it is essentially a contest between Justin Trudeau, the Liberal Party incumbent prime minister who was shamed over the blackface photos of his youth, and the Conservative Party challenger Andrew Scheer, who has been outed as an American citizen.
Such a perspective is shortsighted. Economic performance since Trudeau took office in 2015 is anything but dispiriting.
Unemployment fell faster than in any developed nation during the 40 months that ended in May, to its lowest level since 1976. Gross domestic product accelerated to a pace second only to the U.S. rate. The stock and bond markets proved world beaters with the best returns and most stability.
Behind the robust health are data showing Canada transitioning to a technology juggernaut from a country defined by its dependence on fossil fuels. While the government continues to subsidize coal, gas and oil, which account for 77% of the nation's energy needs, the correlation between the price of oil and Canadian stocks has all but disappeared since Trudeau became prime minister, according to data compiled by Bloomberg. The traditional interdependence of stocks and oil prevailed during the 10 years preceding his election.
At the same time, the similar relationship between stocks and commodities has all but vanished as technology becomes an increasing focus for investors.
The changes coincide with the growing perception of Canada as a haven, benefiting from President Donald Trump's xenophobic restrictions on refugees and other immigrants. The nation of 37 million recorded its biggest immigration wave in more than a century last year, admitting 321,065 people, the most since 1913 (401,000) and the fourth largest number since 1852, when such data were first compiled, according to Statistics Canada.
Unlike Trump, Trudeau welcomes foreign talent, and his government's Global Skills Strategy attracted about 24,000 technology workers and other skilled employees in the two years since it started, according to government figures released in June. Companies are saying that “the two-week processing has really transformed how they make business decisions,” Immigration Minister Ahmed Hussen told Bloomberg News. “They know that in Canada they can use this program to bring in talent really fast.''
All of which helps make the economy stronger and technology the fastest-growing Canadian industry. While Canada's GDP has grown 8% since 2015, its semiconductor business has expanded 11%; electronic products, 27%; computer systems 23%, and information technology, 36%, according to data compiled by Bloomberg. During the decade preceding 2015, when Canadian GDP grew 16.3%, the semiconductor business declined 26%; electronic products fell 13%; computer systems increased 48%, and information technology declined 38%.
Among the 146 technology companies in the MSCI World Equity Index, the five based in Canada climbed to No. 1 among the G-7 countries in the past two years, with a total return of 43% (income plus appreciation) during the past 12 months, according to data compiled by Bloomberg. The result is all the more surprising because the average expense for research and development as a percentage of sales for these Canadian companies is 5.4%, almost half the 11.5% average for the Group of Seven nations and well below the R&D expenditures of 14% for Germany, 12% for the U.S. and 10% for France.
Technology is driving the job market, too. While prices for oil, gas and coal averaged well below the decade's highs -- providing little incentive for expansion -- Canada's unemployment rate declined 1.8 percentage points in the 40 months since 2016, faster than the 1.3 percentage point pace for the U.S. over the same period and the steepest drop since May 2001, according to data compiled by Bloomberg.
The economy's reduced dependence on fossil fuels for growth helped make the Canadian stock market the least volatile among its peers. That contrasts with its performance during the 10 years before 2015, when price fluctuations were greater than they were for global competitors, according to data compiled by Bloomberg.
Trudeau became the first prime minister to bring gender parity to his cabinet, a policy that encouraged corporate Canada to follow suit by promoting women into management at the fastest rate in the G-7 during the past 40 months. The percentage of female executives among the 242 companies in the Toronto Stock Exchange Composite Index increased 13.5% to 15.4%, an advance that beat Germany (1.8%), the U.S. (1.7%) and Japan (0.3%), according to data compiled by Bloomberg.
Trudeau got elected partly because he dared to say the Canadian government needed to spend more on its people and infrastructure, a promise that he appears to have kept and that has been affirmed by investors. The $1.76 trillion of Canadian debt sold by the government and corporations produced an 18% total return since the end of 2015, or 72 basis points a year better than its peers in the $52.8 trillion global bond market, where the average return was 15%, according to data compiled by Bloomberg.
The 242 companies in the S&P/Toronto Stock Exchange Composite has similarly produced a 48% return since the end of 2015, beating the comparable 44% gain for the world equity benchmark. During the decade before 2015, when world equity advanced 73%, Canadian companies returned a paltry 29%, according to data compiled by Bloomberg.
And unlike Trump, who has called climate change a hoax and rolled back initiatives promoting green energy, Trudeau has supported Canada's traditional energy industry while championing clean technologies. Among the country's 20 major companies with at least 10% of sales derived from renewable energy, clean technology or energy efficiency, their revenue increased 8% last year, outperforming the 6% average for G-7 peers.
The Canadian election on Monday may be too close to call. But no one can say Canada hasn't changed for the better in the past four years.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Matthew A. Winkler is Co-founder of Bloomberg News (1990) and Editor-in-Chief Emeritus; Bloomberg Opinion Columnist since 2015; Co-founder of Bloomberg Business Journalism Diversity Program in 2017. During his 25 years as Editor-in-Chief, Bloomberg News was a three-time finalist and winner of the Pulitzer Prize for Explanatory Reporting and received numerous George Polk, Gerald Loeb, Overseas Press Club and Society of Professional Journalists and Editors (Sabew) awards.
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