The Uniqueness of Canadian Economy - Essay Example

The Canadian economy is one of the most diverse and free economies in the whole world and comparable only to the United s. In terms of size, it is the eighth largest globally as per the IMF rankings. In the year 2007, the Canadian economy had a growth rate of 2.7% with a GDP of $1.274 trillion. (Beltrame) Canada benefits greatly from trade deals signed in the past though the same may have some effects on economy such as in the case of the recession. Among these, important trade agreements signed in the past include: the Free trade agreement signed with the USA back in 1989 and the NAFTA agreement also signed with the USA in 1994. Besides the USA, the trade agreements saw an increase in Canadian trade among other countries such as Chile, Costa Rica, Israel, Mexico and other southern American states.(Beltrame) This had profound benefits for the country and the economy growth has been soaring since. Besides those agreements that took place about a decade ago, the country has entered into a free trade agreement with the European Union which has further offered a boost to the already robust economy. The signing of this agreement took place in 2008. The economy of Canada is supported by several sectors which must be looked at as having a better understanding of the economy and the effects of the economy. These include the service sector, the manufacturing sector, the energy sector and the agriculture sector. Service sector This is the largest of the sectors in the Canadian economy, accounting for just about two thirds of the total GDP. The largest of the employers under this sector are the retail sector which employs about 14% of the total Canadian work force. Initially, the retail sector was composed of small retail outlets within the urban centers as well as in the suburbs. However, entry of big outlet stores such as the Future Shop and the Wal-Mart stores originally of the US has forced most of the small retail outlets to migrate to the suburbs where they still employ a considerable number of people. Other employers in the service sector include the business services sector which employs about 12% of the Canadian population. The sectors falling under this are the real estate firms and the banks. The other important sectors falling within the service sector are the education and health sectors. Though these are not part of the private sector, they continue to provide reasonable employment opportunities to the rest of the Canadian economy. The last of the service sector includes the hospitality cum tourism sectors which are equally important for the country. (Viera) Though with the recent recession, there has been a decline in the number of tourists visiting the country mainly due to the strong Canadian dollar. The highest numbers of tourists visiting Canada are from the US though the recent times have seen an increase in Asian tourists especially those from China. Manufacturing sector The manufacturing industry in Canada unlike in most other developed countries is not the core business, though this is not to mean it is unimportant. Most of the industries or manufacturing companies in Canada are affiliates of externally founded companies with an example being the motor industry. Most motor manufacturing industries have a manufacturing plant in Canada but none of them are indigenous. The reason for this has been cited to be the cheaper service charges in Canada e.g. lower health care insurance as compared to the United States. Besides this, Canada has a greater population of educated people making labor considerably lower as compared to the US. Canada presents one of the most interesting economies with a minimal reliance on industries the opposite of other developed countries around the world. Agriculture Canada was initially an agricultural nation especially in the 19th century; that is before the service industry gained considerable dominance in the 20th century. Even in current times, the country is a major exporter of wheat globally though most of it goes to the neighboring US. The Canadian government is a major supporter of the industry with each year allocating a considerable amount for subsides in the sector.(Viera) The government though is a major supporter of the World Trade Organization's initiative to minimize the market, influencing subsides within the sector. Major beneficiaries of the Canadian government subsides on agricultural sector are the research institutes and disaster management initiatives related to food security. Energy This is another sector making Canadian economy unique. This is in the fact that the Canadian government is one of the few developed countries which exports energy. The main energy sources in Canada are the oil and gas resources within its borders particularly located in Alberta and in the Northern regions. The infamous Athabasca Tar Sands makes Canada only second to Saudi Arabia in oil reserve. The country is also a massive producer of environmental friendly hydro electric energy produced in Ontario and Manitoba among other regions falling within British Columbia. This makes Canada not only a leading producer of energy but an exporter of the same. Besides, the energy cost is low compared to other developed countries making it an interest zone for most industries; among these industries being the aluminum manufacturing industry located in Quebec. Other heavy industries occupy the British Columbia regions. The above four are the main drivers of the Canadian economy and any unrest in either of the sectors has a profound effect on the economy. An understanding of the sectors will help us better understand the economic occurrences since the year 2007 and how each of the sectors was affected and what the government did to ensure that drastic effects were prevented. The measures undertaken by the government and the Central Bank of Canada to cushion it against the recession will also be a subject in this discussion. Economy in 2007 The Canadian economy in 2007 was not faced with as many challenges as was evident in the rest of the countries such as the United States. In fact, the statistics for the year show that the Canadian economy outperformed the rest of the Southern trade mates. Its Gross Domestic Product was at 2.7% as would be compared to the lower US Gross Domestic Product which was at 2.2 % the same year (2007). Besides the rise in the GDP, the year also saw the value of the Canadian dollar go up surpassing the value of the US dollar at the time. The total Canadian exports grew; this marked a four year steady growth in exports. These exports were mainly from forestry-concerned-industries and the automobile industry which even though registered a decline from the previous year's value of 13 and 6 percent respectively, they still contributed to the total exports. The other major export sectors were the energy sector, industrial goods sector and the agriculture sector. These sectors provided a total of 50% of the total year's exports. The year saw a decline in US destined exports but an increase in exports destined to other wider areas around the group mainly the European and Asian markets. As far as employment was concerned, the rate of employment fell to 14 % average spell which was the least since 1974. Economy in 2008 The Canadian economy in 2008 received a blow mainly due to the global recession. This saw a shrink in its economy by 3.4 % most evident in the last quarter of the year. This was however better to the forecasted value of 3.6 % by the economists who had foreseen a difficult time for the country. The effects were most pronounced on the value of the Canadian dollar which dropped significantly from the total value recorded in the previous year. The other reasons for the slowed growth rate for the Canadian economy was a decline in housing investments, essentially a market invested by the US real estate firms; these had to exit due to harsh financial conditions back at home. The other was a decline in sales mainly in the auto industry which marked a significant decline in the net sales of the Canadian economy. Other externally generated problems were a general downward trend of commodity prices around the world. This fetched fewer dollars for the Canadian economy causing a down turn. The other effects included an effect in the public finances of the country as it sought to bridge deficits brought about by lower prices of exports as well as a decline in the domestic investments which were largely in the now affected real estate business as well as the auto industry. Unemployment also rose to 6.1% as compared to the year 2007 which saw an all time low unemployment rate of 4.6%. Economy in 2009 The first quarter of 2009 saw a continuation of the economic decline though towards the end of the second quarter, signs of economy expansion had been evident with the Canadian dollar registering a considerable rise as per the US dollar. Other economic progress information is availed by the Canadian bank which forecasts a growth of the economy by 1.4%. They also further predict the strength of the Canadian dollar in the last quarter. (Beltrame) Of great concern however is the job loss since late 2007 which has seen a loss of about 400,000 jobs. These jobs the Canadian Bank indicates will take a little more time to be recovered as the growth rate will not be as fast as the economy decline rate. Government measures and policies The Canadian government is one of the most conservative governments in as far as the economic policies are concerned with most economists referring to it as a boring policy. The boring fiscal policy which forms the base for the economy's financial system is characterized by high regulations and very low risk subjecting it to criticism during credit flourishing times. (Beltrame) However, this conservative approach cushioned the government against the economy and of the major powers, Canada was the least affected. However, the government was always aware of the threat of the decline following the drastic effect in its neighbors and major trade associates such as the US and the Japanese markets. More so, an effect on the economy was eminent following the decline in the disposable incomes of individuals from these countries. This had direct effects on the service sectors such as tourism which had now to do with a lesser number of tourists visiting the country. The last spillover effect that the government had to counter was the industrial product markets which had obviously declined due to financial crises around the world. (Beltrame) This meant that the markets originally available for the disposal of Canadian produced products were no longer existent. This required the government to offer stimulus funds to these manufacturing industries to ensure that they stayed in the market and that they met their costs incurred in production of now stalled goods. Besides the tangible support given to these industries, the finance minister Flaherty insisted on the need to further strengthen financial regulations. Other economic recovery and sustenance measures were the government undertaking to reduce taxes which the Prime Minister Harper had indicated some time mid year. (Viera) The finance minister further supported the recommendations saying that permanent tax reductions remained the key to success for the Canadian government economy. The last of the measures by the government was to give what was referred to as "enhanced benefits" to those who may have lost jobs or had not been employed. Bank of Canada The Bank of Canada, the single regulator of currency and interest rates reverted to what many economists referred to as an unorthodox measure to help the country recover. This was the reduction of the interest rates to an all time low of 0.25 % from the previous 0.5 %. This was meant to drive down the borrowing cost which would in turn increase finances available to households for spending thus helping to stimulate the economy. References Beltrame Julian (2009). The Canadian Press: Bank of Canada declares recession over: http://money.aol.ca/article/bank-of-canada-declares-recession-over/680941/, Retrieved November, 11, 2009. Canwest News service (2009). 'Boring' policy helped Canada through recession, Flaherty: http://www.canada.com/business/Boring+policy+helped+Canada+through+recession+Flaherty/1945557/story.html, Retrieved November, 11, 2009. Paul Viera (2009). Financial Post: Bank of Canada begins to deploy 'unorthodox' measures. April 21st Issue. Read More