Well, perhaps not 'undoubtedly' - the news isn't uniformly bad. But at this point, it's not hard to make the case that the chances of a US recession are better than even.Ordinarily, this would mean that we'd be staring in the face of a recession as well, but things appear to be different this time. Exports (in practice, this means exports to the US) were the driving force behind the 1982-1990 and the 1991-2001 expansions, but they've been a drag on growth in the current expansion, growing only about 2/3 as fast as GDP. The main source of growth has been domestic demand.
Even so, a US slowdown that had the effect of reducing Canadian exports would still be problematic for us. But again, things are different this time, notably the composition of exports. A US recession can still be expected to reduce manufacturing exports, but manufacturing exports are being displaced by energy exports in any case. In previous cycles, this wouldn't matter: a US recession would also reduce oil prices, so Canadian exports would fall anyway. But oil prices are not following the usual script: the US' share of world demand is falling, and world oil supplies are tightening. Even though expectations of a US slowdown are widespread, oil prices are still going up. It may well be that US oil demand will fall, but it will show up as a reduction of oil imports from overseas rather than from Canada or Mexico.
So it's not at all clear to what extent a US slowdown will affect Canada. It certainly won't be a positive, but it doesn't look to be as much as a negative as it would have been in previous cycles.
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posted 25 October 2007 11:37 AM
