Chapter 5

The Edmonton Journal (November 06 2006) had a article on how the GDP of Canada will suffer when the US undergoes recession.

A senior Canadian government economist suggests we do not underestimate the influences the US housing “bubble” and the slow down of the economy can make on Canada because they change so quickly that the effect is hard to predict.

Bank of Canada governor David Dodge also suggests the same idea. He warned the people that it would be a mistake to underestimate the potential impact of the recent slowing in the economy even though the world economy is more elastic today than in the past. “Slower US growth has clearly caused Canadian GDP to fall short of expectations, but it is important to think of this as a cyclical slowdown for Canada.” He said the impact to the Canadian economy is greater than the bank is expecting.

The export promotion agency said slowing global economic growth would increase the pressure on Canadian exporters. Because the US economy is at the centre of weaker global performance, the slowdown from the US housing market will spread to other economies.

EDC forecast US growth would slow to 2.2 per cent in 2007, which is its weakest performance since 2001. There is a 25 per cent chance that the US economy will slip into recession. The report forecasts global growth will slow to 4.0 per cent in 2007,down from 4.8 this year (2006) and Canadian growth to 2.4 from 2.8 even if the US avoids recession.

Export Development Canada chief economist Stephen Poloz said growth will be unbalanced during this time, led by emerging economies while the manufacturing sectors in developed economies, like Canada, bears the brunt of the slowdown.

There will be a decline in energy and metal exports, which means weaker prices. Consumer goods and forestry will each suffer approximately seven per cent drops. British Columbia being a large forestry sector will bear the brunt of the export slump.

Chapter 5 tells us that GDP is calculated using the sum of consumer spending, the investments made by industries, exports minus imports and government spending. If BC will suffer a lot in the forestry sectors, forest industries will invest less into their business, there will be fewer exports. This clearly interrupts the GDP growth in Canada. In any economy, there will be a time of recession and expansion. Going back in the article, David Dodge says “…it is important to think of this as a cyclical slowdown for Canada.” I think this is quite correct, since a economy can be looked at using a graph with the wave shap (reaching its maximum and minimum).