Canadian Economy May Recover in 2010

In the first three months of 2009, Canada posted a 5.4% annualized drop in real GDP, the worst in almost 20 years. And although this quarter’s economic output may still decline, 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 had shifted Canadian trade surplus into a deficit in January and April and brought industrial production into a negative territory in March and April. To make things even worst companies are cutting back on investments and workforce. In fact, in May payrolls shrunk for the sixth time in seven months and nation recorded the highest unemployment rate in 11 years.

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 and nation’s 21 banks earned more than C$12bn last year and needed no bailout. Moreover, 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, due to spike in commodity prices we can expect the trade deficit to come back to the positive territory in the next few months. More importantly, consumer confidence has climbed to its highest level in 15 months in May as Canadians become increasingly assured that better economic times are ahead

Anna Fedec,
6/11/2009 3:53:46 PM