Some light on the Canadian economy

I keep hearing comments that the weakness in Canada's economy is being masked by high commodity prices.

So last night, I got on Excel and using data from Yahoo! Finance, I charted up over thirty of the World's major exchange indices. The result is the year-to-date percentage increase (or decrease!) of each index.

For clarity, the chart I uploaded only includes the representative indices (let me know if you're interested in the spreadsheet).


As the chart shows, the S&P/TSX Composite Index is the best performer of 2008 (as of July 25, 2008) out of all the headline market indices around the globe. It has lost 2% since January because Canada's economy was dragged down by the American economy. Relative to the world though, it outperformed. If commodity prices continue to fall, so too will the Canadian dollar against other global currencies. This increase export profits will hedge itself against falling commodity prices. The Canadian GDP may have fallen the most out of all the G8 countries, but if the fundamentals for future growth outlook are good then who cares? In the United States, I don't expect much growth through 2009, and our neighbour to the south is our biggest trading partner.

So yes, I do expect growth to be weak (at best) for the next 12-16 months. It may sputter, but when Canada's economy is placed in the relative context of it's global counterparts, I don't understand what all the fuss is about.

---

External Links

The worriers:

• Bigger worries than subprime on the horizon (John Greenwood, Financial Post)
• "Canada's economic picture darkening" (CTV.ca)

The realists:

• New Indicators Back BoC's Positive Upbeat Economic News (Canadian Press)
• Canada never had the excesses the U.S. had..." (Bloomberg.com)