A economia canadense

Why there's no need to panic about the Canadian economy

By Anne Golden, President and Chief Executive OfficerGlobe and Mail onlineJuly 18, 2008
Dire economic news seems to be hitting us from all sides these days. Yet there is no reason to panic about the state of Canada's overall economy.
True, recent news about the U.S. economy has been grim. The woes of Fannie Mae and Freddie Mac, which together own or insure close to 50 per cent of the country's outstanding mortgage debt, have resulted in another tumble in global equity markets as concerns mount about the availability of credit. The fallout from the subprime meltdown will continue affecting financial markets into 2009, and residential construction is expected to remain at rock-bottom levels well into next year. This comes on top of contracting labour markets and rising inflation — a stagflation scenario that the Federal Reserve is struggling to deal with.
However, there are some bright spots. The weak greenback has contributed to solid gains in U.S. exports — the trade sector is likely to add a percentage point to growth in the second quarter of this year. Real wages are holding up despite higher gasoline prices and job losses, helping to boost growth in real household spending. In fact, it is likely that growth in the U.S. economy could accelerate to an annualized pace of 2 per cent in the second quarter, up from the 1 per cent registered in the first quarter. Growth will remain weak over the near term, but at least it should stay in positive territory.
The United States, Japan and much of Europe are encountering difficult economic times. However, developing countries, specifically China and even India (whose stellar 9-per-cent growth rate is expected to decelerate), are helping to pick up the slack. The Conference Board of Canada expects global GDP to expand by about 3 per cent this year. This strong global demand is supporting high raw material prices, even in the face of threatening economic reports.
The recent rise in oil and other commodity prices has benefited Canada's economy overall, despite uneven sectoral and regional impacts. While we are not producing a whole lot more (as measured by real GDP growth), much of what we do produce is now worth a whole lot more. Over the past five years, this "income effect" has driven up corporate profits and household income, while filling government coffers. This, in turn, has led to a robust performance in our domestic economy — bolstered by growth in business investment, household spending and government spending — driving the unemployment rate down to record lows. In fact, over the 2003-07 period, real GDP grew by an average of 2.9 per cent per year, with the domestic economy contributing about 4.7 percentage points, while the trade sector subtracted 1.8 points.
Looking ahead, there are signs that growth in our domestic economy is easing. We are not immune to the slowdown in U.S. consumer spending, nor to the restructuring that the Big Three auto producers are facing. The stalling of U.S. residential construction is hurting our forest-products industries, already under pressure from our high dollar. Bad economic news and higher gas prices are weakening consumer confidence — our real-estate market, buoyant for so long, is showing signs of softening. And the trade sector continues to drag down our overall growth rate.
Nevertheless, our strong domestic economy, boosted by high commodity prices, will cushion the landing, keeping employment elevated and business investment solid. The Conference Board is predicting that Canada's economy will grow by 1.7 per cent in 2008. While the headlines today may be grim, the board believes that our economy will remain sound through this tumultuous cycle and that there is no need to panic.
Anne Golden is president and CEO of The Conference Board of Canada. The board's latest economic forecast is available at www.conferenceboard.ca.
For more information:Tel: (613) 526-3280 E-mail: contactcboc@conferenceboard.ca
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