Canada set to outperform U.S. in 2008

Posted on October 15, 2007
Filed Under Economy |

According to CIBC World Markets, the Canadian economy will “outperform” the United States economy in 2008. Looks like the strong Canadian loonie (dollar) will set pressures on the country’s manufacturing sector, but will not hold the economy back at all. CIBC World Markets’ economic forecast indicated the loonie will hit $1.05 U.S.. This will be the dollar’s highest level in nearly 50-years.

• “The loonie’s flight is far from over,” said Jeff Rubin, chief economist at CIBC World Markets. “By the end of next year, you’ll get as much as a nickel back when you trade your loonies for greenbacks, the biggest premium since 1960.”
• “A much stronger domestic economy north of the border will in turn translate into divergent monetary policies in the two countries, with the Federal Reserve Board following through with another 50 basis points of easing while the Bank of Canada remains on the sidelines,” said Mr. Rubin.
• “With interest rate spreads turning against the greenback, and commodity prices buoyant, the Canadian dollar should climb to a 5 per cent premium against the U.S. dollar by the end of 2008.”

While the U.S. market is expecting a “significant drag” from its hardships in the housing market (Bernanke), the Canadian economy is expected to remain in good health; A huge turnaround from the past where Canada is traditionally, metaphorically described as the mouse who needs to run for cover when the elephant (the United States) falls / rolls over. Today we see Canada strategically positioned, and prone to economic fluctuations from south of the border.

Yes, the American economy and its dollar is sinking - BUT it does not by any stretch mean that the Canadian economy and its dollar is not soaring. The Canadian dollar is up quite strongly against the Euro, the British Pound, the Japanese Yen… as a matter of fact it’s really hard to any currency that has done better than the Canadian dollar.

What else do we need to consider before jumping up and down, across the streets? Well according to CIBC World Markets, “the strong currency combined with U.S. economic weakness has pushed manufacturing in Canada close to its lowest share of the gross domestic product in the post-war period”. The bank also expects the Canadian jobless rate to fall as low as the United States’ for the first time since 1982.

However, the recent 300,000 job loss in the manufacturing industry have been offset by job creation in other industries with lowest employment levels in decades. What next? Right now it is really up to the federal government’s budgets and how it utilizes the country’s healthy budget in order to provide positive stimulation to the challenge-faced manufacturing industry.

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