Saturday, March 23, 2013

Why Canada's economy is in trouble (Dutch Disease?)

Sober Look: 
  • Canada's exports are heavily concentrated in energy with a big focus on the nation's largest trading partner, the US. And as discussed before, the US energy markets are now quite well supplied. The US has a tremendous domestic source of natural gas, while crude oil inventories are high relative to historical levels - reducing demand for Canadian energy product in the US.
  • Over the past decade the Canadian dollar has strengthened dramatically, and in spite of some temporary weakness during the financial crisis is still close to parity with the US dollar. This makes Canadian products more expensive on a relative basis.
  • Over the past decade Canada's manufacturing labor costs have sharply outpaced those in the US, making Canadian firms less competitive.
  • Driven in part by the strength of the Canadian dollar as well as worsening labor competitiveness, Canada's current account has been in the red for some time now. What's particularly troubling is Canada's deterioration of the current account outside of energy exports. The trend is making the nation increasingly reliant on its energy export just as the demand from the US declines.

No comments:

Post a Comment

Reactions welcome! Please use your full name.