The Canadian Economy

 

mardi 25 avril 2017

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The Canadian Economy
The Society of Canada

 

Today, the Canadian economy strongly resembles that of its neighbour to the south, the US. Besides having similar patterns of production and living standards, Canada has also adopted a market oriented economic system. Both countries are highly industrialized and Canada’s manufacturing industry is highly valued by the economy – the automobile industry for example attracts major investments from US and Japanese automobile companies with multiple manufacturing plants set up in Canada.

Canada’s economic progress is closely tied to that of the US. Following the signing of the 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA), trade and economic integration between both countries have increased significantly. The US is Canada’s largest foreign investor with heavy investments in mining, smelting, petroleum, chemicals and machinery.

The US is Canada’s largest and most important trade partner. In 2009, 75.02 percent of Canadian exports were directed to the US, while 51.1 percent of imports came from the US.

The UK and China are Canada’s next largest export partners after the US. Respectively, these countries account for 3.37 and 3.09 percent of Canada’s exports. China is also the second largest source for imports to Canada, accounting for 10.88 percent of imports. In 2010, Canada was the 10th largest exporter and 12th largest importer in the world.

 

Are there any remaining economic differences between Canada and the US? We can underline at least two major ones.

1) The ressouce-based economic system of Canada

Unlike the US or most other advanced economies, Canada’s economy remains mostly based in the exploitation and exports of its natural resources. Canada contains a rich abundance of minerals (iron ore, nickel, zinc, copper, gold, lead), forest products (lumber, pulp and paper) and energy resources (coal, petroleum, natural gas and hydropower).

and water-based resources such as  rare earth elements, molybdenum, potash, diamonds, silver, fish, timber, wildlife,

 

Harold Innis emphasized the historical dependency of the Canadian economy on staples: fur and fish; wheat and lumber; pulp and paper, minerals and oil:

“The economic history of CD has been dominated by the discrepancy between the centre and the margin of western civilization. [...] energy in the colony was drawn into the production of the staple commodity both directly and indirectly. Population was involved directly in the production of the staple and indirectly in the production of facilities promoting production. Agriculture, industry, transportation, trade, finance, and governmental activities tend to become subordinate to the production of the staple for a more highly specialized manufacturing community.”

Harold Innis, The Fur Trade in Canada, University of Toronto Press, Toronto, 2e éd., 1956 [1930], p. 385.

 

While in the past, the exports of staples like furs, fish and wheat were directed towards European markets, since the 1920s and especially after WW2, exports of Canadian staples have been absorbed by the US markets. The post war prosperity was fuelled by the expansion of natural-resource export industry (forest products, mining and oil and gas) to serve US markets.

 

Today Canada is the world leader in value of mineral exports with energy resources providing for a vast amount of profit. Canada is a net exporter of energy, exporting 2.151 million barrels of oil per day and 94.67 billion cubic metres of natural gas in 2010. As a result, Canada is the 10th largest exporter of oil and the 3rd largest exporter of natural gas in the world. In addition, Canada has the 2nd largest proven reserves of oil in the world together with the 21st largest proven reserves of natural gas.

 

As might be expected, the  energy trade is a critical element in US-Canada trade. Canada is the US’s largest oil supplier, accounting for 16 percent of US oil imports and 14 percent of US’s natural gas consumption. Besides sharing hydropower facilities on the western borders, national electricity grids in Canada and the US are also linked with each other.

 

Canada is therefore very dependent on the oil and gas industry. It was promoted by the Conservatives after 2006 and high oil prices led to a boom, especially in Alberta. The decrease of the price of oils and raw materials since 2014 affected Canada. More than 52,500 direct jobs were lost in Canada’s oil and gas industry in 2015 and 2016 while the GDP growth slowed down from 2.6% in 2014 to 0.9% in 2015. It had a direct impact on the political balance of the country: it facilitated the victory of the New Democratic Party in Alberta, a province historically dominated by the Conservatives; it also clearly handicapped the Conservatives during the 2015 federal election and helped the Liberals' victory.

 

However, 2017 is expected to introduce oil and gas industry recovery and job creations for the next five years.  Several new pipeline projects (including Keystone XL, which had been cancelled by the Obama administration and was reinstated by the Trump administration) were approved by Canada’s Liberal government in 2016 and 2017.

 

2) A more regulated economy in Canada

The old Canadian tradition of state intervention in the economy ensures that the Canadian economy is more regulated than the American one. This is particularly true of the banking system. Experts consider that the more conservative banking system of Canada is the reason why Canada did not suffer from the subprime crisis in 2008.

 

“Why didn’t Canada have a banking crisis in 2008 (or in 1930, or 1907, or ...)?”

Michael D. Bordo, Angela Redish, Hugh Rockoff,

National Bureau of Economic Research

Working Paper 17312

http://www.offnews.info/downloads/w17312.pdf

 

Good and Boring

By PAUL KRUGMAN

Published: January 31, 2010

The New York Times

http://www.nytimes.com/2010/02/01/opinion/01krugman.html?_r=0

 

 

     3) Recent perspectives

 

While the oil slump of 2014-2015 affected Canada, on the whole the economy remains very prosperous. Unemployment remains stable at 6.9%. Due to its severe cuts on public spending in the 1990s and 2000s, Canada has one of the lowest public debts among developed countries: 30.9% of the GDP as opposed to 74.9% for Germany, 95.6% for France and 105% for the United States (2014 figures).

To boost the Canadian economy, the new Liberal government has announced its intention of using a public modest deficit to improve infrastructures and finance a stimulus package. This was confirmed in the March 2016 budget, while strong monthly GDP figures that promise a bright start for 2016.

 

Check out Canada’s Annual Economic Indicators:

http://www.international.gc.ca/economist-economiste/statistics-statistiques/data-indicators-indicateurs/Annual_Ec_Indicators.aspx?lang=eng