Canada’S Two-Track Economy To Persist

Even though the world economy is decelerating, and inflation pressures are likely to ease in 2008, the risk that this is just the 1970s all over again will remain front and centre for the next 12-18 months. And, even if oil and other commodity prices ratchet down during the global slowdown so that inflation risks dissipate entirely, those prices are likely to remain high by historical standards – well above their averages during the last economic cycle. Which means that we are likely to be faced with a two-track economy for the foreseeable future. In Canada, the pressure to adapt to this two-speed world is being magnified by the appreciation of our currency, which accompanies rising resource prices. As commodity prices ease, so too should the Canadian dollar, but the continued two-track nature of the global backdrop will mean persistent strength in the loonie. These divergent stresses will show up in a number of ways, not least in the pattern of Canadian export sales. EDC is forecasting growth of 3.7% in the dollar value of total Canadian export sales in 2007. But experience will range from growth of 26% for fertilizers, 20% for ores and metals and 15% for agri-food, to outright declines in sales of 8% for consumer goods, 6% for cars and 6% for telecom equipment. With some declines in commodity prices likely in 2008, these divergences will narrow, but they will remain large. The two-track economy will also remain evident at the regional level. For 2007, we are forecasting export growth to range from 17% for Newfoundland and Labrador to -2% for British Columbia. For 2008, something similar: 12% growth is forecast for Saskatchewan's exports, around -1% for Ontario and Quebec. The bottom line? Unless resource pricing goes into wholesale retreat, the pressure to adapt to a two-track global economy will persist for the next several years. Repositioning ourselves in international markets will be key to a successful adaptation. http://www.edc.ca/english/docs/ereports/commentary/publications_13909.htm

Note: http://www.edc.ca/engli...