We had our quarterly visit from Maureen Farrow last week. (Maureen is a highly-respected Canadian economist whom we retain to provide us with economic analysis and briefings.)
All things being equal given the tough economy,she’s feeling relatively bullish about Canada’s prospects these days. There is an unusual amount of global investor interest in our country and with good reason.
After all, it’s no secret that Canada has survived the financial crisis better than almost all other major industrialized nations of the world.
The contrasts, particularly with the United States, are quite startling:
- Our authorities are trying to slow down our real estate market while the US market is having trouble finding a bottom.
- Our government debt is estimated by 2014 to only have risen to about 65% of GDP, versus almost 100% for the US and over 200% for Japan.
- Our banks are among the healthiest in the world.
- Our dollar is climbing.
- Perhaps the most striking difference Maureen pointed to was the rate of comparative job loss during the recession. In Canada, from ‘peak to trough’, about 400,000 jobs were lost, compared with 8.4 million jobs lost in the United States. Their unemployment rate appears to be stuck at 9.7% ,whereas Canadian unemployment peaked in August 2009 at 8.7% and currently stands at 8.2%. In March the U.S. created 162,000 new jobs. But even at this rate, it will be a long time getting back to pre-recession employment levels and that will be a real drag on consumer spending – which represents about 75% of the U.S. economy.
It is no wonder that the Bank of Canada will likely start raising interest rates this summer ahead of the US. as they start to move the monetary dial back to a neutral position
If so, this will be the first rate increase for Canada ahead of the U.S. Federal Reserve Board. But Maureen is suggesting that this “gap of prosperity” is likely to last for quite a number of years.
She is now calling Canada a “Related Beneficiary” - together with Australia and Brazil- of the global growth being led by Asia, specifically China and India. As a producer of natural resources and commodities, Canada will benefit from this growth.
She also warned us to be ready for a pickup in merger & acquisition activity in Canada as buyers from Asia look to become direct owners in our resources.
It did not take long for her prophecy to come true with the announcement this past weekend that China Petroleum & Chemical Corp., Asia’s biggest refiner, will spend $4-billion for a 9 per cent stake in Syncrude Canada Ltd.
This M&A activity benefits not only the resource-rich provinces but Ontario as well, as it is home to many of the legal and financial services providers who are suppliers to these deals.
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