18 February 2009

Canadian economy bites the dust

So much for the theory that Canada's economy was going to go right on sailing the high seas when the US tanked. Yet another nail in the coffin of the de-coupling theory. If anything, the bubble in Canadian real-estate has been even more spectacularly insane than that of our neighbours to the south.

As I've said for a long time, the economic fall-out from the global credit bubble is going to be far worse in most other nations than in the US.

Economic problems in the U.S. have always been keenly felt in Canada. But
until last fall, Canada looked positioned to weather the storm better than its
southern neighbor. Low corporate and consumer debt levels, no subprime-mortgage
crisis, and surpluses in the federal budget and trade balance placed it on
sounder footing. Economists expected slower growth but no recession.

Last fall, as economic problems multiplied in the U.S. and elsewhere in
Canada, Alberta's oil-and-gas industry briefly remained a bright spot. Then the
bottom dropped out of the oil market, as the global downturn suppressed demand.
Tightening credit compounded the problem. Almost overnight, oil companies
started postponing investment plans.

Rick George, the chief executive of Calgary-based Suncor, which in January
postponed site-expansion work worth C$14 billion, estimates that 35,000
temporary workers employed around the Fort McMurray oil sands will be reduced to
fewer than 10,000 by the end of the year. Given how frenetic the boom was, he
says, "we needed a correction. What we didn't need is a collapse in the banking
system and the world economy to get it."


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