Macroeconomic Performance of Canada during the Recent Crisis - Assignment Example

?Macroeconomic Performance of Canada during the Recent Crisis Macroeconomic Performance of Canada during the Recent Crisis Overview The global crisis affected all the nations in the world; however, the nature and speed that nations recovered from the same economic effects of the crisis differed significantly. Notably, the macroeconomic performance usually differs remarkable per country and the same may be used to explain the trend through which nations eloped from the 2006 – 2011 global crises. Some countries were affected immensely while others were affected less. For instance, China was never affected as Australia (Organization for Economic Co-Operation…, 2006; Pg. 132). The Chinese economic growth never dropped below six percent while on the other hand, Australian economy was adversely affected up to a point that it experiences no growth in its economy for the whole quarter. Other economies including Mexico, Japan, and the United Kingdom had their annual GDPs contracting by between 5 and 10 percent per quarter a phenomenon that lasted between and seven quarters consecutively (Daudelin and Schwanen, 2008; Pg. 103). Notably, Canada also was not affected greatly be the recent global economic recession; therefore, this paper aims at analyzing whether its management during this economic trying times was due to its effective economic policies or just a mare luck. Introduction Numerous research works have since been conducted on the 20060 to 2011 global economic effect and recovery of these economies from such crisis. Most reports from these research works indicate that economies that performed better despite the effects of global economic crisis have affective capitalized banking sectors, current account surplus, low loan to deposit rations, low growth rates and levels of credit to GDP private sectors, and high foreign exchange reserves (Piersanti, 2012; Pg. 44). Therefore, it appropriate to note that the economies that managed to move from the economic crises that were facilitated by global economic crisis had efficient and adversely effective policy decisions. Moreover, their financial crises were well managed by their institutions that reduced the vulnerability of these economies’ to the financial crisis. Canada managed the global economic crisis and its economic developments despite the crisis were reflected on its sustained economic growth that was reflected mainly on the domestic spending and its continued economic growth. Additionally, it stemmed from the debts of the debt crisis affecting the euro zone sovereign. Numerous factors are preempted to have helped Canada through the global economic crisis. Some of the postulated factors include the federal fiscal plans that favored low borrowing costs; thus, enhancing the market credibility (Organization for Economic Co-Operation…, 2006; Pg. 78). The Canadian banking system was and has remained sound and effective that it never required the taxpayers to bail it out during the crisis. Canada has also become one of the strong merging economies that most of the world economies shifted their purchasing power towards thereby stabilizing its economy. Despite these measures, the Canadian economy was slightly affected by global financial crisis. For instance, the crisis threatened its financial market by lowering business confidence among investors (Daudelin and Schwanen, 2008; Pg. 151). This lowered the interest rates thereby increasing the mortgage debts and increasing housing prices. However, same financial effect or effects never affected Canada as an economy but affected some parts or cities with Canada. Additionally, Canada for long time has enjoyed credible policies and strong institutions. Moreover, for many years, the Canadian economy has been pegged on capital input and increasing labor. The multi factor productivity growth has declined and weakened further for the decades. Canada has also registered poor R & D and partnering rates. Therefore, as means of curbing these problems, Canada opted increase its innovative measures (Piersanti, 2012; Pg. 94). Notably, these measures increased the Canadian MFP growth that elevated the living standard with more advantages of the initiative being realized across population ages. Therefore, it is worth noting that Canadian situation was contributed for greatly by its economic initiative and federal government’s financial policies. Canada’s Macroeconomic Development Canada recovered faster from the 2008 – 2009 global economic crises. This nature of recovery is pegged on its fiscal stimulus and timely monetary as well as high commodity prices and effective financial system. Despite the recovery, Canada is experiencing sharp unemployment specifically after the peak of the recession (Organization for Economic Co-Operation…, 2006; Pg. 193). The unemployment effect is currently nearing its long term average rate. Nonetheless, the structural OECD structural rates, corporate financial margins, and real business investment have been restored to the pre global economic crisis levels. Moreover, in late 2011 to early 2012, Canada experienced economic expansion that was considered a temporary effect (Organization for Economic Co-Operation…, 2006; Pg. 108). From summer 2011 to a period of nearly six months, the employment in Canada stagnated and this was related to several weakness within the Canadian public sector. The unemployment crisis was experienced in the entire European states and it was factored by European sovereign debt crisis that heightened the global financial market uncertainty (Organisation for Economic Co-Operation and Development, 2004; Pg. 142). However, Canada’s easy business credit conditions and high frequency indicators are some of the factors that helped the Canadian economy to recover from the immediate effects of global economic crisis. Graph 1: showing the unemployment rates in Canada after the global economic crisis Canada had an increasing trend in its unemployment rates that was very high during the global economic recession. However, at the peak of the crisis, the trend declined following the Canadian economic recovery (Daudelin and Schwanen, 2008; Pg. 221). Nonetheless, the economy continued to show structural adjustments that was facilitated by relative movement of prices a situation that started in the early 2000s. The unemployment rates declined sharply following the effects of global crisis on the export manufacturing sectors. By the year 2011, this sector only registered 12.6 percent as its total added value. This figure was too low compared to the year 2000’s 18.6 percent. The shared employment also experience low level rates for the past decades. At a steady decrease from 15.2 to 10.2 percent, the Canadian employment rate decline was still above the employment rates in the United States (Piersanti, 2012; Pg. 142). The same challenges are reflected in the percentage budgets balance as represented in the graph 2 below. It is worth noting that these economies had been correlated with developments in the exchange rates that affected regional economic growths explaining why other Canadian cities had high per capita income gain than others. Graph 2: The budget balance as % of GDP (Source: amecoselect.dta) Additionally, the sectorial activities also affected the employment rates in Canada. Other states including Alberta, Newfoundland, Saskatchewan, and Labrador have high income per capita than other cities. The increase of income per capita, for example, for Alberta is pegged on increased population that provides ready employment to its manufacturing institutions. Additionally, Alberta enjoys its economic nourishment from its energy wealth. Energy has enjoyed strong prices and the same is expected to persist due to continued recovery from the global economic crisis. Therefore, the employment rates are expected to be on the positive trends in both domestic and export trades. The merchandise exports especially to the United States have since recovered nearly 75 percent from the decline realized during the 2008 peak. Moreover, the emerging markets have exceeded their expected pre-crisis levels (Organization for Economic Co-Operation…, 2006; Pg. 213). The robust economic growth for the emerging markets has led to an enormous increase in the Canadian commodity export due to high demand on such Canadian commodities. For instance, Canada current sells nearly 10 percent of its merchandise exports to non OECD down from 5 percent of the year 2000. On the other hand, the United States’ shares have since declined from 84 to 72 percent over the same period of Canadian gain. Moreover, the Canadian dollar has since appreciated significantly for the past one decade. On the trade weighted basis, the Canadian dollar has remained strong even for the United States’ dollar. This increased strength of the Canadian dollar is based mainly on the sharp increases on the Canadian commodities particularly its energy produce and products. The appreciation in the value of the Canadian dollar has led to the depression of current account balance reflected around the surplus GDP of 2 percent in early 2000 to the current deficit of nearly 3 percent. Bottom of Form Graph 3: showing trend in the Canadian GDP Graph 3a: stock market for the recession period Analysis of the Canadian relatively moderate economic growth on the slightly upward tilt and above the potential rates, there are clear indications that the increasing supportive economy for the years to come. The recovery of the United States fragile economy and the euro area problems as well as the effects of the strong Canadian dollar are likely to limit the Canadian export growth; however, its high commodity prices and low capital costs should be continue towards supporting business investments within the Canadian economy. Additionally, a planned fiscal consolidation will remain beneficial to the market confidence and towards long term economic sustainability. However, the initiative will reduce or weaken the domestic demand. Notably, the net worth of the domestic market have registered decline with weak prices in equity (Daudelin and Schwanen, 2008; Pg. 176). These declines have shown positive effects to the Canadian economy, for instance, they have resulted to moderate and steady job creation; however, the same effects are postulated to restrain private consumption growth. Regardless of these threats, economic analysts note that investments and private consumptions will still grow to be the significant drivers of the Canadian economy. Fiscal Policies The downturn of Canadian economy and resulting stimulus injections of nearly 4 percent GDP (values noted at the federal level), have led to significant increased gross and net government debts. The Canadian government general balance have been noted to deteriorate from the 2007 surplus of 1.4 percent in its GDP readings to 2011 deficit of 4.5 percent of the Canadian GDP. This had led to the increased government gross debt by nearly 20 percent points on the GDP making the GDP to rise up to 85 percent by the end of the 2011 financial year (Piersanti, 2012; Pg. 183). Graph 4: BAA-AAA spread Some of the registered increase in the GDP was factored by non-budgetary allocation or transactions including new federal government debt insurance to the government backed financial mortgage insurance bonds originating from Insured Mortgage Purchase Program (Organisation for Economic Co-Operation and Development, 2004; Pg. 162). Other government transactions that might have led to the same include assets progressive liquidation. These actions were aimed at reducing CAD gross debt by 2.4, 41.9 and 10.6 billion between the year 2012 and 2913, 2013- 2014, and 2014 – 2015 respectively. Graph 6: The budget balance as % of GDP (Source: amecoselect.dta) Graph 7: showing the real Canadian GDP growth Canadian gross debt to GDP ratio is expected to fall to nearly three quarter of the entire OECD average. Moreover, the shared GDP is expected to remain little more than the half the OECD average as per the 2013 figures. These figures reflect the relative existence of large general Canadian government financial assets. Notably, by the end of the year 2011, the Canadian federal government had assets totaling to 15 percent of its GDP, the local and provincial government assets constituted 35 percent of national GDP, and the Quebec or Canadian pension plan totaling to 11 percent of the GDP (Piersanti, 2012; Pg. 202). Finally, it is worth noting that by the government returns of the year 2011, it 40 percent of the Canadian government assets holding were mainly in commercial crown corporations’ equity and loans. Therefore, it is worth concluding that the Canadian government’s fiscal policies and the financial institution are the main elements that helped it to manage itself from the aftermath of the global financial crisis, faster than other economies of the world. References Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Bottom of Form Top of Form DAUDELIN, J., & SCHWANEN, D. (2008). Canada among nations 2007: what room to manoeuvre? Montre?al, Que?bec, McGill-Queen's University Press. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, & SOURCEOECD (ONLINE SERVICE). (2006). Agricultural and fisheries policies in Mexico recent achievements, continuing the reform agenda. Paris, OECD. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT. (2004). Canada. 2004. 2004. Paris, OECD. PIERSANTI, G. (2012). The macroeconomic theory of exchange rate crises. Oxford, Oxford University Press. Read More