The Canadian GDP reading for June showed a 0.1% expansion, the first positive number in 10 months. But will Canada be one of the first developed economies coming out of this recession?
Indeed, Canada’s economic fundamentals have been much stronger than those of other countries. For instance, balance sheets in the Canadian financial sector have been pretty good and banks needed no bailout last year.
Moreover, both the Canadian government and the Reserve Bank have been taken measures to improve credit availability and spending. For instance, 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.
To make the outlook even better, commodity prices have risen during recent months giving an extra boost to the economy.
On the other hand, we can’t forget that 45% of Canadian GDP comes from exports of which only 40% are commodities. And 80% of the exports go to the United States, which is still fighting with recession.
Looking further, Canada exports as much cars as crude oil and machinery, equipment, automotive products, chemicals, plastics and fertilizers are very important export products. So, without demand recovery in the United States it is very doubtful that Canada will emerge from this recession as fas as anticipated by many investors.
Disclosure: No positions