Oh Canada! Some Tough Financial Times Are Ahead

The American Foreign Press reports that Canada will contract significantly in the coming months before a USD$31.2 billion, stimulus helps spur a turnaround in the country. Further export declines and soft commodity prices are likely to weigh on employment and income. Uncertainty in the near term could restrain investment, and core inflation is expected to decline, the International Monetary Fund (IMF) said in a recent report.

The IMF had downgraded its 2009 Canadian economic growth forecast to 1.2% in its last report. It will be lowered again in April, officials say. Fourth quarter exports fell by 17.5% as Canada registered its first trade deficit in 10 years. Domestic demand shrank as households and businesses retrenched amid falling commodity and asset prices, hastening the nation’s sharpest decline since 1991. Going into January, the unemployment rate rose to 7.2% and a slackening of the economy pushed inflation down to 1.9%.

Over the past decade in Canada, the federal debt relative to gross domestic product (GDP), was cut in half, monetary policy kept prices stable, and a floating exchange rate absorbed wide commodity price fluctuations. Canada’s banking sector has remained stable, and its banks were well capitalized entering the downturn and have avoided the huge losses experienced in other countries.