Canada’s economy is poised for a shaky rebound from the sub-par progress made last year. Economists at a number of Canadian banks are predicting our economy will start to recover “unevenly” in the latter half of 2013. Canada’s fundamentals are in decent shape as the manufacturing sector picks up and trade improves.
However, there are a few significant factors posing a risk to Canada’s economic recovery. National unemployment remains high at 7.2 per cent. The U.S., our largest trading partner, is facing slower-than-expected growth, and the EU remains plagued by debt problems.
Let’s take a look at the impact these factors have on Canada’s economic growth.
The United States: Canadian Energy and Agriculture
We do more trade with the U.S. than with any other nation in the world, and this is especially true when it comes to energy and agriculture. Canada is the United States’ largest and most secure supplier of energy: oil, natural gas, electricity and nuclear fuel. As well, Canada exports more than $18 billion in agricultural products to the U.S. every year. With the tepid recovery of the American economy Canada exports to the U.S. continue to be threatened. The U.S. recovering at such a slow rate will make future decisions regarding buying contracts from Canadian companies more difficult.
The Impact of Bond Markets
With economic stimulus and quantitative easing measures coming to end in many countries around the world, bond values have been fluctuating widely in anticipation of the future effect on yields. Stability in the bond market is important for banks to make long term loans such as mortgages, and fixed mortgage rates correspond directly with yield levels; homeowners could be affected if bond yields start to rise sharply in the next few months. Bond markets were calm early in the year, but the latest economic drama in Cyprus have again sent negative vibrations across the globe and all fixed income markets.
Global Woes Mean A Lower Loonie
A bit of bright news for Canadian businesses: higher interest in the American dollar means our currency will weaken. As the world continues to reel from a series of economic problems across the globe, investors are flocking to the safety of the U.S. dollar. This is sending our Loonie lower as investors dump our currency. It’s bad news for anyone wanting to travel this summer, but there are positive long term implications for businesses that can now operate at a lower cost. The incoming Bank of Canada Governor Stephen Poloz is in favour of a lower Loonie and has commented that our dollar looks to be 5-10 per cent overvalued.
Canada is the world’s 11th largest economy and an important trade partner to many countries, but we still remain very much reliant on other larger economies – mainly the U.S and Europe – in order to survive. With a population of just under 35 million there is not enough manpower to fuel our economic engine. As the world recovers slowly and continues to be affected by debt crisis and wild market swings so will Canada – no matter how strong we are.