Trudeau’s Finance Chief Measures His Legacy in Tiny Fractions

(Bloomberg) -- A decimal point or two on growth is all Bill Morneau wants to be known for when all is said and done on his time as Canada’s finance minister.

“My goal would be that Canada grew faster than it would have otherwise grown if we hadn’t done the things we’ve done,” Morneau said in an interview last week in Buenos Aires, where he was attending a meeting of his Group of 20 counterparts.

Trudeau’s Finance Chief Measures His Legacy in Tiny Fractions

It’s not exactly the sort of legacy people build statues for, but it reflects a pragmatism that at least zeros in on Canada’s central economic challenge. The nation has entered a low-growth world hobbled by an aging labor force and sluggish productivity that policy makers can do little about, other than fight for tenths of a percentage point.

On Thursday, Statistics Canada releases January gross domestic product figures that may show the economy on track for sub-2 percent growth for a third straight quarter, which would be the slowest stretch of growth since 2015.

Morneau’s budget last month projected Canadian growth will settle at about 1.7 percent starting in 2019, in line with what the Bank of Canada sees as the nation’s long-term trend rate.

“A decimal point or two can be a materially different impact when you are talking about the kinds of growth rates we’re seeing,” Morneau said. “So if we can add a 5 or 10 or 15 percent faster growth rate that can have a really big impact.”

After the Boom

Canada’s economic drop off is all the more striking since it follows a surprise 12-month boom in growth that came to an end last summer. Growth averaged just over 3.7 percent in the four quarters that ended in June, which was the fastest pace since 2006.

But the main driver behind the boom -- consumer spending -- is slowing and the economy is returning to levels considered more in line with its potential. Record household debt levels and what seems to be a cooling housing market are weighing on consumption.

That’s dovetailing with slowing growth in the labor force and sluggish productivity to create a pretty weak growth profile for Canada’s economy, as is the case for many other developed countries. It’s an environment where even two-tenths of a percentage point on growth, as Morneau points out, could represent a significant acceleration from trend.

The Bank of Canada is trying to do its part, largely by remaining cautious on future rate hikes. Low borrowing costs, it believes, will prompt businesses to boost investment, which should bolster productivity, offset slower consumption and continue to draw more people into the labor force.

Morneau’s task is a little bit more complicated, since he has both political and economic objectives to consider. They include delivering on campaign pledges that may have no (or even negative) linkages to growth.

Still, many of the government’s key policies -- the child benefit program, infrastructure spending, efforts to bolster female participation in the labor force -- are seen as mostly beneficial to promoting growth. On trade, key to the country’s ability to sustain long-term growth, the Liberals are “fighting the good fight,” said Christopher Ragan, director of the Max Bell School of Public Policy at McGill University.

The areas where the government is weakest -- the lack of policies to create more competition and a fondness toward dishing out money to companies -- aren’t exclusively within Morneau’s scope of influence. And while the government faces scrutiny over its deficits, the nation’s finances are still far from levels that would be a burden on the economy.

They are “not getting an A, but maybe a B plus,” Ragan said.

Growth is a tricky metric of success for Morneau and the governing Liberals. Prime Minister Justin Trudeau likes to criticize his Conservative predecessor Stephen Harper for having the worst growth record since Depression-era leader R.B. Bennett. But the best Trudeau can hope for -- based on the economic forecasts in his 2018 budget -- is to have the second-worst growth record after Harper.

And if Canada is hit by another global recession during his tenure, Trudeau will likely have the worst even if Morneau succeeds in squeezing out a bit more growth.

©2018 Bloomberg L.P.