Thomas White Global Investing
Canada
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June 12, 2009
A Postcard from the Americas
Canada: Economy Likely to be One of the First to Recover

Canada might be one of the first economies to recover from the recession

The OECD calculates that Canada’s economy will contract 2.6% this year, down from a March estimate of 3%.

The big financial crunch has bitten most economies and recovery is still a dot on the horizon. But there could be one cookie that has not crumbled. Canada has been named as one of the first economies in the world to likely come out of recession, according to Angel Gurria, secretary-general of the Organization for Economic Co-operation and Development (OECD), speaking at the 15th annual International Economic Forum of the Americas held in Montreal.

Gurria’s assessment backs up Canadian Finance Minister Jim Flaherty’s recent statement that Canada will lead the global recovery. The OECD has named Canada among four industrialized nations, including France, Italy and the U.K., that are showing signs of having reached a trough in the economic downturn. The OECD’s composite leading indicator for Canada edged up to 93.6 in April from 93.2 in March, giving rise to hopes of stabilization and recovery. There are other green shoots of recovery as well. For instance, the Canada Mortgage and Housing Corporation reported that the annual rate of housing starts increased by about 9% in May from the previous month.

It seems that Canada, a commodities based economy, is benefitting from the positive change of pace in world trade. Oil prices are climbing to more than $70 a barrel, a good indication for Canada, which has the world’s second largest oil reserves and is the largest exporter of oil to the U.S. As well, emerging economies like India, China and Brazil are showing signs of revitalization. China especially is showing good potential as industrial production is picking up, pushing up demand for natural resources. This has augured well for Canada, a nation rich in natural resources like minerals, energy and forests. Chinese imports of metals like zinc and copper are positives for Canada, which rang up a brief trade surplus of $1.1 billion in March up from $262-million in February. Minerals and metals have remained one of the strengths of the Canadian economy, with the industry contributing $40 billion to Canada’s GDP in 2008.

But Canada still has a $50 billion plus deficit and an unemployment rate that hit an 11-year high of 8.4% in May. The OECD has urged Canada as well as other nations to keep their stimulus measures in place until a rebound is clearly visible. While other countries have exhausted their spending capacities, Canada is in a position to boost spending if necessary.

Canada’s GDP is expected to expand by 0.7% next year, which is a slight improvement over the 0.3% predicted in March this year. The OECD report specifies that Canada’s “recessionary conditions” will linger well into the third quarter and there will be only a slow recovery thereafter as unemployment will continue to be a problem until early 2010.

But however slow the rebound may be, as Canadian Finance Minister Jim Flaherty aptly sums up, there is “cautious optimism that a global economic recovery may not be far behind.”

 

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