IN THIS ISSUE. CBC Learning Curio.ca, P.O. Box 500, Stn A, Toronto, ON, Canada M5W 1E6

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2 IN THIS ISSUE The Canadian Economy: Facing a Global Downturn (Duration 17:01) When the International Monetary Fund downgraded its global economic forecast in January 2016, it predicted Canada's economy would only grow 1.7 percent for the year. Canadian banks aren't as optimistic, settling for a mere 1.3 per cent. It s not good news for a country that is admittedly feeling the pinch of a downturn. What's to blame? China? Slower than expected growth in the U.S.? That 70 percent plunge in oil value? Whatever the cause, Canadians are feeling the pressure. And we're paying for it with higher food prices, a tanking loonie and rising unemployment. News in Review Study Modules Oil Price Plunge, January 2015 Canada and the Jobless Crisis, February 2012 The Rise of the Occupy Movement, December 2011 Is the Recession Really Over?, December 2009 The Recession and the Developing World, May 2009 Canada Gets a Recession Budget, March 2009 Canada Faces a Recession, December 2008 Canada and the Economic Breakdown, November 2008 Boom Times: Alberta's Red-Hot Economy, May 2006 Related CBC Programs Generation Jobless House of Cards Meltdown: The Secret History of the Global Financial Collapse The Mystery of Capital The Sharing Economy Credits News in Review is produced by CBC News Resource Guide Writer/Editor: Sean Dolan Host: Michael Serapio Packaging Producer: Marie-Hélène Savard Associate Producer: Agathe Carrier Supervising Manager: Laraine Bone Visit us at our website at curio.ca/newsinreview, where you will find an electronic version of this resource guide and an archive of all previous News in Review seasons. As a companion resource, we recommend that students and teachers access CBC News Online, a multimedia current news source that is found on the CBC s home page at cbc.ca/news/. Closed Captioning News in Review programs are closed captioned for the hearing impaired, for English as a Second Language students, or for situations in which the additional on-screen print component will enhance learning. CBC Learning authorizes the reproduction of material contained in this resource guide for educational purposes. Please identify the source. News in Review is distributed by: CBC Learning Curio.ca, P.O. Box 500, Stn A, Toronto, ON, Canada M5W 1E6 Copyright 2016 Canadian Broadcasting Corporation

3 News in Review March 2016 Teacher Resource Guide THE CANADIAN ECONOMY: Facing a Global Downturn VIDEO REVIEW Before Viewing A recession is a period of economic decline characterized by hard times and increased unemployment. Strictly speaking, an economy is in recession when a nation s Gross Domestic Product (GDP) falls in two successive quarters. In other words, if the value of goods and services generated in Canada shrinks over a sixmonth period, the country is in a recession. Canada last experienced a recession in 2008 but quickly bounced out of it in Currently, economists fear that another recession might be in the offing. 1. Why do you think Canadians might be worried that the current economic downturn might be turning into a recession? Is Canada in a recession? The question has been hotly debated. Some economists believe the poor performance of the economy constitutes a technical recession. However, others believe that the current state of the economy is disheartening but not quite a recession technical or otherwise. 2. What sectors of the economy have been suffering? 3. What economic news have you heard that might make you concerned about Canada s economy? Viewing 1. What is the cause of the global recession? a) China s slowing economy b) Slower than expected growth in the U.S. c) A 70 per cent plunge in the price of oil d) All of the above 2. How many people lost their jobs when the potash mine closed in Sussex, New Brunswick? 3. Why does a struggling Chinese economy have ramifications for the Canadian economy? 4. Why are oil prices so low? News in Review CBC Learning curio.ca/newsinreview 1

4 5. How many Albertans have lost their jobs as a result of the global recession? 6. How low do some analysts think the price of oil will go? 7. Why did the Saudi s flood the market with cheap oil? Who were they trying to hurt? 8. How hard has the struggling economy hit the Fort McMurray housing market? What details in the video support your conclusion? 9. What effect has declining oil prices and a low dollar had on food prices? Provide an example. 10. Which businesses are benefiting from the weak Canadian dollar? 11. Why is Canada becoming a very attractive tourist destination? 12. Why are U.S. buyers scooping up real estate in Whistler? 13. How large of a deficit do the Liberal s forecast for 2016? How much did they initially project for the deficit? 14. What is the Liberal plan for the Canada s economy? News in Review CBC Learning curio.ca/newsinreview 2

5 15. Why do the Liberal s feel it is going to be very difficult for them to deliver a balanced budget any time soon? After Viewing Before the economy dipped, the government of Medicine Hat came up with an ambitious plan to deal with homelessness. Over the course of five years, the municipal government developed a strategy to put homeless people into subsidized housing within 10 days of landing in a shelter. However, the economic downturn in Alberta crippled the plan as unemployment led to evictions and evictions led to a surge in demand for shelter beds. What does this tell you about the changing fortunes of Alberta s oil rich economy? News in Review CBC Learning curio.ca/newsinreview 3

6 THE STORY Minds On After 14 years of working as a welder in Fort McMurray, Alberta, Chris Hickey, a native Newfoundlander, knew that his job was at risk. Production in the oil sands had slowed to a crawl but he hoped a skilled tradesman like himself could stay employed and ride out the downturn. His fortunes changed in the blink of an eye: he attended a picnic on Sunday (where company executives told everyone that all was well) then went to work on Monday only to be told he had been laid off. 1. Why might Chris Hickey be considered the human face of economic hard times? What is it about his story that tells us the economy is struggling? 2. Read between the lines. How difficult will Hickey s life turn out to be in the coming weeks and months (or even years)? Home prices in Fort McMurray, Alberta, dropped by 20 per cent between November 2014 and November China s changing fortunes It all really came undone in China. What seemed like a never-ending wave of growth turned into a multi-trillion dollar crash that brought the Chinese economy to its knees. Most economists didn t see it coming. In a matter of weeks, the best performing economy in the world lost $3 trillion in wealth as a blip turned into a tidal wave of panicked investors dumping their stocks. This, in turn, led to a beat-down of commodities like oil and copper. The overall effect of the crash sent shockwaves around the world - and one country that was badly hit was Canada. [In the interests of preserving jobs, China has been supporting zombie enterprises where commodities are being brought to market despite the fact that no one is there to buy them. For example, some Chinese mines continue to pull coal from the earth, load the mineral onto trucks and drive them to storage facilities just so people in the industry can keep their jobs.] Teetering on the brink Due in large part to the Chinese stock market crash, the Canadian economy teetered dangerously close to recession in For years, Canada s financial stability was the envy of many. Buoyed by a strong energy sector and a stable banking system, other nations were wondering how we were able to do it. That is until the economy collapsed in China and Canada s lack of economic diversity was exposed. Suddenly our Chinese trade partners had less money to buy our oil and the energy sector tanked. Corresponding businesses followed the lead of the oil producers - mostly in Alberta, but also in Saskatchewan and Newfoundland - and slowed down production, laying off scores of employees in the process. News in Review CBC Learning curio.ca/newsinreview 4

7 Oil glut The oil sector was already in a rough shape when the Chinese stock market crashed. The Organization of Petroleum Exporting Countries (OPEC) made the strategic decision to flood global markets with oil in the hopes of driving expensive fossil fuel producers out of business. The oil glut led to a drop in the price of a barrel of oil from close to $100 to less than $30. OPEC s main target: the U.S. who had become self-sufficient in natural gas and oil thanks in large part to hydraulic fracturing (commonly known as fracking). However, the attack on the U.S. energy sector fell short as a tenacious U.S. economy staved off the OPEC challenge. The price of oil peaked at $145 a barrel in After OPEC flooded the market with oil, the price dropped steadily to less than $30 a barrel by late Pummeled in the oil sands Unfortunately, countries like Canada did not fare as well as the U.S. Why? Energy sector analysts estimate oil sand producers in Alberta would need the price of oil to be around $55 a barrel to break even. With the cost of oil plummeting to $22 in December 2015, it became pretty apparent that the main players in the oil game were getting pummeled by the OPEC-generated glut. Thus, the double-whammy of cheap oil and a battered Chinese economy led to a massive slowdown of the Canadian economy that came dangerously close to a recession. Ontario s turn (?) When the downturn hit in earnest, some economists claimed that the economy would rebound on the strength of Ontario s manufacturing sector. This logic was flawed for a couple of reasons. The drop in the price of oil combined with a resurgent U.S. economy led to a decline in the value of the Canadian dollar hitting a 13 year low of 69 cents (U.S.) in January While the low dollar would attract investors, Ontario s manufacturing sector pretty much packed up and left the province in the late 90s and early 2000s. In fact, the province s manufacturing sector has shrunk by 30 per cent (or jobs!) and real manufacturing output is down by 20 per cent (or $25 billion) since According to Mike Moffat of the Ivey School of Business, There s not a bunch of factories in southwestern Ontario with modern, up-to-date equipment waiting for somebody to turn the lights on. Thus, there was no significant manufacturing sector to pick up the slack created by the gap that emerged in the energy sector. Consumer spending It appears that the main thing driving the Canadian economy forward at a pace of a little more than one per cent per year (the lowest pace of growth outside of a recession in Canadian history) has been consumer spending. Canadians love to buy things but often to their own peril. Currently, the average Canadian owes $1.63 for every dollar of disposable income they earn. In other words, people are spending more than they make and they are floating their debts from month to month, paying off what they owe incrementally in the form of minimum payments. However, this spending is what is keeping Canada from dipping into recession. Home purchases are particularly important in keeping Canada s economy going. Real estate accounts for over 25 per cent of the nation s The average personal debt load (excluding mortgages) for citizens of Alberta was nearly $ in 2015 $4 000 higher than people living in neighbouring Saskatchewan. Why might this be problematic during a period of provincial or national economic instability? News in Review CBC Learning curio.ca/newsinreview 5

8 GDP per year. In fact, real estate supply and demand has led to an extremely competitive market particularly in Vancouver and Toronto. While most analysts claim Canadian homes are overvalued by as much as 30 per cent, Deutsche Bank believe homes could be over priced by as much as 63 per cent. According to Wall Street prognosticator Marc Cohodes, Canadians should be worried. You have a resource economy that s been blown apart sitting on top of a housing bubble. Echoing Cohodes s concerns is the Canadian Mortgage and Housing Corporation who warn, if oil prices stay at $35 a barrel for the next five years, Canada s unemployment rate could reach 12.2 per cent and housing prices across the country could drop by 26 per cent. If Canadians start managing their debt, cool their spending, and show less inclination to jump in and out of the housing market, the economy could take a major dip. In other words, the recession that no one wants could become a reality. Sources: Dragicevic, Nevena. (July 29, 2014). How Ontario lost manufacturing jobs (and why they aren t coming back. Mowat Centre. Retrieved from: mowatcentre.ca Kirby, Jason. (December 28, 2015). A bad year for banks. Maclean s. Retrieved from: Markusoff, Jason and Chris Sorenson (January 18, 2016). Gutted by glut. MacLean s. Retrieved from: Sorenson, Chris and Aaron Hutchins (July 15, 2015). How Canada s economy from boom to recession so fast. Maclean s. Retrieved from: To Consider 1. Why did the Chinese stock market crash have such a major impact on the Canadian economy? 2. What impact did a decline in oil prices have on Canada s economy? 3.Why wasn t Ontario able to pick up the economic slack created by Alberta s fossil fuel sector problems? 4. Why is consumer debt and a fragile housing market of particular concern to experts monitoring our economy? News in Review CBC Learning curio.ca/newsinreview 6

9 SPEND YOUR WAY INTO ECONOMIC HEALTH It seems to be the Canadian way: when economic hard times hit, spend your way out of trouble. In fact, Canadian governments have been doing this since the development of the Keynesian economic strategy designed to lift the British economy out of the Great Depression in the early 1930s. Economist John Maynard Keynes posited that increased government expenditures and lower taxes could be used to stimulate business and consumer spending in an effort to slowly lift nations out of downturns, recessions and depressions. Since Keynes originally put the idea forward, governments around the world have used Keynesian economics as an approach to keep flailing economies afloat. The International Monetary Fund downgraded its 2017 forecast for Canada predicting the economy will grow slowly at a rate of 2.1 per cent because of sluggish growth trends around the world. It appears that Canada is taking the Keynesian approach in the face of the current downturn. The election of Justin Trudeau and the Liberals in the fall of 2015 signaled the start of a fresh round of huge government infrastructure expenditures. In all, the Liberals promised to dedicate over $100 billion over 10 years to things like public transit development, bridge and road construction, and public works projects. However, the Liberal plan ran into a roadblock early into the Trudeau mandate. Despite promising to limit deficits to $10 billion a year and balance the budget within four years the Liberals claimed that they had inherited a multi-billion-dollar debt from the outgoing Conservatives and tabled a budget in March 2016 with a $30-billion deficit for the next fiscal year. The deficit is slated to shrink to $16 billion in but this certainly limits the ability of the Liberals to spend money. Nonetheless, Finance Minister Bill Morneau vowed to stay the course on infrastructure spending, putting up $60 billion on top of the $65 billion already earmarked for public works. While the idea of balancing the books seems out of reach, Morneau says the government will have to be sensible about their expenditures while using infrastructure spending as a way to stimulate the economy. According to Morneau, We made significant commitments to Canadians to invest and grow the economy. We also told Canadians we would be prudent along the way. Time will tell if prudence will rule the day. Time will also tell whether the Keynesian way will help lift Canada out of the current economic downturn or if the economy will continue to struggle. Source: Campion-Smith, Bruce. (February 24, 2016). 'Primary' focus is spending to spur growth. The Toronto Star. Retrieved from: To Consider 1. What is meant by the term Keynesian economics? 2. How does Canada plan to use a Keynesian approach to avoid a recession? 3. What obstacles stand in the way of Canada spending their way out of the downturn? News in Review CBC Learning curio.ca/newsinreview 7