By Stephen Gordon - Tuesday, November 13, 2012 - 0 Comments
Forecasters everywhere—the private sector, the IMF, the Bank of Canada—are revising downwards their projections for GDP growth over the next year or so. There’s concern about the looming U.S. “fiscal cliff,” and there’s little sign that the eurozone crisis will be settled anytime soon. And Finance Minister Jim Flaherty is responding by… doing not very much at all, actually.
But then again, why should he?
Downward revisions are not a reason to panic: no forecast is ever exactly right, and if the original forecast was unbiased, you’d expect downward revisions roughly half the time. And the revisions in GDP growth forecasts are minor: 2.0 per cent in 2013 instead of 2.4 per cent. Neither number is consistent with roaring growth, but neither are they consistent with a recession. These revisions are not strong enough to force a change in anyone’s preferred policy stance. And the government’s current policy stance is broadly correct as far as business cycle policy goes. The recession ended more than three years ago; the time for using infrastructure construction as a fiscal stimulus is long past.