By Tom Bradley

The CBC woke me up this morning with rain warnings (Is summer really over?), big stock market declines and the voice of Finance Minister Jim Flaherty. The rain and markets didn’t get me too worked up, but I found the minister’s attempt at optimism to be disconcerting. Even in my semi-conscious state, his statements were too sanguine for my liking.

In the commentary below, I’ve paraphrased what Mr. Flaherty said and then added some perspective. I’m not doom and gloom on Canada, but I do think his comments need a counterpoint.

Canada’s economy is in much better shape than the rest of the Western world.

This is true, but he’s talking about present day. Reassurances about the future based on what’s happening today are … well … useless at best and irresponsible at worst. One of Federal Reserve Chairman Ben Bernanke’s most infamous lines came in the spring of 2006 when he tried to provide reassurance about the U.S. housing market. He said, "it looks to be a very orderly and moderate kind of cooling at this point." (An Orderly Decline of the Housing Market? Not.) With finance ministers, central bankers and economists, always be careful when they justify predictions about the future with facts from the present.

Canada has more room to move if things slow down.

I suppose that compared to Europe and the U.S., Canada has a little more firepower to fight a recession, but he glossed over two important points. First, we may have more in the cupboard, but it’s mostly crumbs. We’ve been running a $40 billion deficit while the economy has been strong and our resource and housing industries have been humming. Mr. Flaherty’s government has already used up most of its fiscal stimulant.

And as for interest rates, I don’t think we can say that a 1% bank rate (vs. 0.25% in the U.S.) is a huge advantage. From these levels, lower interest rates won’t do anything. It’s only crumbs here too.

In summary, we’ve got almost no ability to soften the impact of a global recession. To think otherwise is misguided.

From conversations with business people, the thing that’s holding back the economy is the uncertainty. Businesses need to recognize that Canada is in good shape and get on with it.

Certainly, we’d all like to see the business community forge ahead and take advantage of the current dislocations in the world. Their reticence, however, is understandable for a couple of reasons. Canadian businesses are highly dependent on exports and yet, they’re not feeling very competitive these days. As one portfolio manager said to me recently, “Canada isn’t low cost at anything it does and is high cost at a lot of things it does.” The second reason is that their two big customers – the U.S. and China – aren’t what they used to be. The U.S. outlook is uncertain and there are cracks starting to show in the China machine. So while our world-beating stock market hasn’t necessarily reflected it, our economy is what industry professionals describe as ‘high beta’. In other words, it will be more volatile than the global economy overall.

Maybe I just got up on the wrong side of bed, or the rain and markets have me in a foul mood, but I don’t think Minister Flaherty’s hollow pep talk is what we need right now.