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True North, Strong?

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Many have argued that the recession in Canada will be milder compared to the rest of the world. The head of Canada’s Central Bank went so far as to claim that the recovery will be “V” shaped. A steep decline followed by a quick climb out of the economic malaise. There is no shortage of pundits championing the resiliency of the Canadian economic order. However, there are reasons for deep concern that these predictions are  far off base and Canada will be in serious trouble over the next couple of years.

Canada has been able to appear more stable than our neighbors for a couple of reasons. First, the high price of oil in the summer was a boon to the economy whereas, it hurt non-producing nations. This gave a period of insulation from the collapse elsewhere. However, it will become clear over the next couple of months that this has only served to delay the recession. It appears as though we are 6 to 12 months behind the downturn in other economies.

Second, the banking system in Canada will help insulate Canadian businesses from a severe credit crunch. Well capitalized banks will allow deserving businesses access to credit. Tighter regulation and a less-fragmented `big bank` approach will become the standard across modern finance.

The job numbers are the most telling sign that Canada is lagging other economies by 6 months and the economy will not have the hoped for V-shaped recovery. 129,000 jobs were lost in the month of January.  The manufacturing sector in Canada is in a dire state and the outlook is bleak. Ontario produces more cars than any other region in North America.  Although this fact was championed 2 years ago, the reliance on manufacturing and the auto industry is a scary prospect for Ontario.

In the West, the commodity producers will have to cancel or scale back the capital projects planned last year. The commodity contagion effect will serve to hurt construction and service industries alike.

 With this in mind, it doesn`t seem like the political response has matched up with the problems that will be faced in Canada (I will have to cover this in another posting). You have to wonder when they will face the economic reality that Canada is not as immune as they claim.

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Written by currancomment

February 14, 2009 at 5:05 pm

Posted in Uncategorized

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