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Canada “Going Down With The Ship”

In May 2007, we wrote an article in the HS Dent Forecast titled “What About Canada.” We suggested that, despite the country’s abundant natural resources, Canada would “go down with the ship” when the United States sank into recession. This would be due to Canada’s reliance on exports to the United States, which accounted for more than 84% of total Canadian exports at time of writing — not to mention 27% of Canadian GDP!

Our words proved to be prophetic. We read this week in a New York Times press release that,

“Falling exports to the United States caused Canada’s current-account deficit to swell in the second quarter to a record high of 11.2 billion Canadian dollars ($10.4 billion), cementing expectations that the economy contracted in the quarter… In a striking sign of the impact of recession and a strong Canadian dollar, the quarter was the first time since 1976 that Canada imported more goods than it exported, resulting in a deficit in goods trade of 1.71 billion Canadian dollars.”

Canada’s trade surplus with the United States has declined by 17.6 billion Canadian dollars in the last three quarters as a result of America’s plummeting consumer spending, investment, and construction. And given that Canada’s Spending Wave is in the process of peaking, the country cannot expect its domestic consumer to come to the rescue. We estimate that Canada has many years of slow growth in front of her.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy