Canadian Economy May Recover Faster Than Expected

Canadian gross domestic product fell 0.1 percent in February, after declining 0.7% in January. And although this quarter’s economic output may be headed for its biggest quarterly decline since 1961 at Trading Economics we think that Canadian economy may get out of the crisis faster than expected.

In fact, a heavy exposure to commodities and deep trading links with the United States has made the Canadian economy particularly vulnerable to a downturn in the global economy. For instance, slumping shipments of cars and lumber to the U.S., and lower prices for exported commodities have shifted Canadian trade surplus into a deficit in December and January and brought industrial production into a negative territory in March.

However, even though there are clear signs of deterioration in the world's eighth largest economy, we think Canada is in a much better condition than other countries. For instance, balance sheets in the Canadian financial sector look pretty good with the ratio of deposits to total liabilities as high as 70 per cent. Moreover, nation’s 21 banks earned more than C$12bn last year and needed no bailout. More importantly, the government and central bank are taking measures to improve credit availability and spending. The overnight interest rate was cut to 0.5 per cent and a C$40bn fiscal stimulus package was introduced at the end of January. Also, recently due to spike in commodity prices we can see slight improvement in the trade data; balance of trade was in surplus and exports picked up in February and March.

Anna Fedec,
5/26/2009 10:17:37 AM