After growing at a red hot annualised rate of 5.8% in Q1 2010, Canada’s Economic growth has come down to just 2% in Q2, 2010. Canadian policymakers now need to look beyond the ‘short cuts’, be it interest rates or output, if they want the Economy to sustain its growth momentum.
Of the seven industrialised nations that comprise the G7, Canada clearly stands out when it comes to economic recovery from the recent recession. Reason: It not only expanded at an annual pace of 5.8%, but also recovered both the employment and real output losses that accrued over the troubled course, in just one year. No other G7 nation can make an equivalent claim.
However, the party seems to be over for now for this North American nation as the recent economic data out of Canada suggest that its economy might not hold on to the top slot anymore. After growing at a red hot annualised rate of 5.8% in Q1 2010, Canadian economic growth has come down to just 2% in Q2, 2010. While a healthy job market (employment growing at 2.1% yoy) and solid wage growth (4.8% yoy in Q2 2010) should continue to fuel domestic demand, there are several potential headwinds that needs to be avoided. So, with the benefits of the inventory swing (inventory rebuilding had accounted for over 33% of GDP growth in 2009) behind and the boost from government stimulus (over $60 billion in 2009 and 2010) fading, is Canada’s economic boom finally over?
Jay Bryson, Global Economist at Wells Fargo Securities tells B&E, “The strong pace of growth that Canada has been able to realise over the past year led the central bank to take back 75 bps of earlier rate reductions that it believed were no longer necessary. But some of the key factors that helped propel growth during the recovery are no longer providing much help. The consumer, who started out with a fairly decent balance sheet, has become more levered and spending growth has been spotty recently.”
In fact, it has been just one month since Bank of Canada’s (BoC) last rate decision (on September 8, 2010, BoC increased the overnight lending rate to 1%) and just over one week until the next one (perhaps indicating another rate hike), but the risks have already begun to play out in the Canadian economy. The latest employment report, released two days after the last decision, was (after adjustments) the worst since May 2009. As per the report, the average monthly employment gain was just 6,600 in Q3 2010, down from 75,530 in the April to June period.
Housing starts too fell to 1,86,000 units, down nearly 10% from the peak reached last April. Interestingly, in 2009, several people had rushed into the market so that they could take advantage of near zero short-term interest rates and as a result in the 11 months between January and December 2009, existing home sales skyrocketed by almost 66% and prices by more than 21%. But, since the start of 2010, one can clearly see that phenomenon reversing. While sales have corrected by more than 20%, prices too have softened by 3% (as of August 2010).
Of the seven industrialised nations that comprise the G7, Canada clearly stands out when it comes to economic recovery from the recent recession. Reason: It not only expanded at an annual pace of 5.8%, but also recovered both the employment and real output losses that accrued over the troubled course, in just one year. No other G7 nation can make an equivalent claim.
However, the party seems to be over for now for this North American nation as the recent economic data out of Canada suggest that its economy might not hold on to the top slot anymore. After growing at a red hot annualised rate of 5.8% in Q1 2010, Canadian economic growth has come down to just 2% in Q2, 2010. While a healthy job market (employment growing at 2.1% yoy) and solid wage growth (4.8% yoy in Q2 2010) should continue to fuel domestic demand, there are several potential headwinds that needs to be avoided. So, with the benefits of the inventory swing (inventory rebuilding had accounted for over 33% of GDP growth in 2009) behind and the boost from government stimulus (over $60 billion in 2009 and 2010) fading, is Canada’s economic boom finally over?
Jay Bryson, Global Economist at Wells Fargo Securities tells B&E, “The strong pace of growth that Canada has been able to realise over the past year led the central bank to take back 75 bps of earlier rate reductions that it believed were no longer necessary. But some of the key factors that helped propel growth during the recovery are no longer providing much help. The consumer, who started out with a fairly decent balance sheet, has become more levered and spending growth has been spotty recently.”
In fact, it has been just one month since Bank of Canada’s (BoC) last rate decision (on September 8, 2010, BoC increased the overnight lending rate to 1%) and just over one week until the next one (perhaps indicating another rate hike), but the risks have already begun to play out in the Canadian economy. The latest employment report, released two days after the last decision, was (after adjustments) the worst since May 2009. As per the report, the average monthly employment gain was just 6,600 in Q3 2010, down from 75,530 in the April to June period.
Housing starts too fell to 1,86,000 units, down nearly 10% from the peak reached last April. Interestingly, in 2009, several people had rushed into the market so that they could take advantage of near zero short-term interest rates and as a result in the 11 months between January and December 2009, existing home sales skyrocketed by almost 66% and prices by more than 21%. But, since the start of 2010, one can clearly see that phenomenon reversing. While sales have corrected by more than 20%, prices too have softened by 3% (as of August 2010).
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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