Canada’s economy is suffering badly and could well be sliding from its current state of recession into outright depression due to the following 6 factors:
It is ironic…[that] the nation most impacted by the collapse in oil is neither China, nor – as many had expected – Russia, but what to many is a bedrock of economic stability: the AAA rated Canada.
Basic Balance Deteriorating Drastically
According to BofA’s Kamal Sharma, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.
Money Outflow Fastest On Record
Citing Sharma’s data Bloomberg writes that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.
“This is Canadian investors that are pushing money abroad,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.”
Crude Oil Sales Have Collapsed
The reasons for the accelerating outflows are…[primarily due to the collapse in crude oil, among the nation’s biggest exports, which has dropped to half of its 2014 peak. “The slump has derailed projects this year in Canada’s oil sands – one of the world’s most expensive crude-producing regions. Royal Dutch Shell Plc’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial Corp.”
Manufacturing PMI Has Dropped to a Record Low[If the oil problem is not bad enough]…the latest RBC Canadian Manufacturing PMI survey dropped to a record low in October, with output, new orders and employment all declining since the previous month. Moreover, new export sales dropped for the first time since April, with survey respondents noting that weaker global economic conditions had weighed on new business volumes. In other words, not even the tumbling loonie is helping boost exports: a bedrock assumption of modern monetary policy.
Input Costs Have Risen Sharply
Meanwhile, input costs rose at a sharp and accelerated pace in October, which placed pressure on operating margins and contributed to a further slight increase in factory gate charges.
Merchandise Trade Deficit Continues
Finally, the country is expected to post its 12th straight merchandise trade deficit this week, according to every economist in a Bloomberg survey.
Canadian Dollar to Weaken Further
Bloomberg calculates that more weakness for the CAD, and more capital outflows, are on deck as the Canadian dollar has to get cheaper to make Canadian businesses outside of the oil industry competitive enough with foreign peers to make them worth investing in, according to Benjamin Reitzes, an economist at Bank of Montreal.
How long will it be before Canada’s newly elected Prime Minister, Justin Trudeau, is seen in the White House begging Obama to put an end to QE so that the U.S. shale sector…will mercifully die and prevent Canada’s economy from sliding from recession into an outright depression?[The above version of the article*, written by Tyler Durden (ZeroHedge.com) is presented by the editorial team of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample here – register here) in a slightly edited ([ ]) and abridged (…) format to provide a fast and easy read.]
*http://www.zerohedge.com/news/2015-11-02/forget-china-extremely-developed-country-just-suffered-its-biggest-money-outflow-ever (Copyright ©2009-2015 ZeroHedge.com/ABC Media, LTD; All Rights Reserved.)
Also read: “It’s A Bloodbath” – Here Is The Biggest Casualty Of Canada’s Recession (http://www.zerohedge.com/news/2015-11-11/its-bloodbath-here-biggest-casualty-canadas-recession) for more information on Canada’s economic situation.
Related article from the munKNEE Vault
Canada has surprisingly often been the place where the future happens first – and it’s happening again. Last Monday, Canadian voters swept the ruling Conservatives out of power, delivering a stunning victory to the center-left Liberals led by Justin Trudeau in a clear rejection of the deficit-obsessed austerity orthodoxy that has dominated political discourse across the Western world. The Liberals ran on a frankly, openly Keynesian vision, and won big.
Canadian households are heavily leveraged and with their level of debt in proportion to income now hovering at record levels, they are vulnerable to a range of economic shocks that could create a financial crisis. I am of the opinion, however, that the range of variables at play discussed in this article would mitigate any possibility of a meltdown of Canada’s financial system. Let me explain.
The Bank of Canada took a good look at the Canadian economy, saw it was sinking into the mire, glanced at the collapsed prices of commodities, particularly oil, saw how they were wreaking havoc in Canada, and then looked at the global economy, particularly at China and the US, and freaked out with the realization (acknowledgement) that things are heading south FAST.
Chilling references to a potential (likely) financial crisis in Canada keep cropping up in official statistical data releases. First it was concerns about the housing bubble there and the high level of personal debt to income, now it’s about how hard manufacturing is getting hit there in spite of the loonie (Canadian dollar) dropping 17% against the US dollar in the past 15 months. It really begs the question “Oh Canada, Are You Prepared For What’s Coming?”
The real estate sector in Canada is in a bubble that could burst at any time according to the IMF, Deutsch Bank, the Bank of Canada and The Economist.