The strength of financially sound and resource rich Canada are being tested by the global turmoil. Canada is a perfect example to the world so as to what happens when all your eggs are in one basket. A glance at the top 5 exporters of Canadian goods, US takes the top pace with a whopping 62% of total exports flowing in to the country. This is followed by China which has 7% share, Japan with-4%share, UK-3% and Mexico-2%. On leaving aside US exports for the month of August where we saw a 6.3% net increase MOM (the biggest we have seen since December 2006), the overall picture remains gloomy.
The Oil prices have fallen down to $38 per barrel making the matter worse for the 5th largest oil producer. Moreover there seems to be no respite from the tumbling down of crude. This has been the 5th successive month for the Canadian economy to have registered a negative growth If we see the 6th month heading in the similar direction of plummeting growth, Canada might find itself in a tight spot. Moreover, the geopolitics affairs are also not turning out to be pleasant. We are witnessing Iran mending its fences and in all likelihood might get a good opportunity of export restrictions being taken off. This will lead to an extra million barrel of crude oil on the wrong side of equation.This may be unpleasant sight for an oil producing country like Canada.
The resilience of Canadian economy is being tested by the Global market forces as well.The decision of China to devalue its currency to improve its competitiveness has resulted in meltdown of 8.5% of its stock market , which has set off a stock market carnage all across the globe. The DOW Jones industrial average fell 1000 points before recovering from the day’s low and closed at 15,797 on 24th Aug. While the appetite of china to consume global commodity has been on decline for quite some time, what is more worrisome is the current scenario which isn’t likely to change soon.
While all may not be well in Asia and Europe, Mexico is also turning out to be a major competitor for Canada in terms of export to USA. Mexico has lately become a more favored destination for Non-oil US imports. Even the depreciation of Canadian dollar by 21% in last two years hasn’t been of much help. The candle is burning from both ends. Oil on one and Mexico becoming an attractive destination for low priced non oil US imports.
Canada has to factor in these developments and look out for avenues beyond Energy, Materials and Finances which accounts for 70% TSX Composite Index. With the technology sector transforming the future of countries like the USA it presents itself an opportunity to focus on such avenues so as not to be left behind in the era which might bring prosperity fueled by technology. With the federal election due in October, it might be interesting to see how leaders pitch for technological capabilities to be developed in-house and towards transforming the economy from a commodity market to a technological powerhouse.
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